Commentary
It was the December Lean Hogs turn to knocked to the canvass on Tuesday. Hogs were pummeled right from the open and nearly went down limit as profit taking was in full force. Yesterday’s stoppage at the 72.80 resistance level set the stage for fierce selling today, sending price through support at 68.75 to the session low at 68.50. It recovered somewhat and settled above support at 69.275. I think this is healthy for the hog market as traders need to take profits on a test of resistance in my opinion. Hogs are in an uptrend and the rally we have seen is pretty steep and we could see more profit taking in front of Thursday’s export sales report. Support is at 68.75, 67.80 and then 66.55. There is trendline support at 67.325. Resistance is at 69.80, 70.80 and then 71.80.
The Pork Cutout Index increased and is at 98.17 as of 10/19/2020.
The Lean Hog Index ticked higher and is at 78.27 as of 10/16/2020.
Estimated Slaughter for Tuesday is 488,000 which is even with last week and above last year’s slaughter at 487,000. The weekly total (so far) is 965,000, which is below last week’s 966,000 and last year’s 977,000.
January Feeder Cattle made a new low on Tuesday at 124.25 and then surged to test resistance at 127.575, making the high just above it at 127.875. It couldn’t hold the rally, however and pulled back to settle at 126.70. Basically, Feeders consolidated within yesterday’s trading range. Support is at 125.90, 122.775 and then 120.50. Resistance is at 127.575, 128.875 and then 129.65.
The Feeder Cattle Index fell and is at 138.66 as of 10/19/2020.
December Live Cattle made a new low on Tuesday, falling to 103.85 which is just below the 200 DMA at 104.09. Price was able to bounce back to retest the session high at 106.00 which is just below resistance 106.025. It settled at 105.45. So, for one day at least the 200 DMA was able to stop the selling in December cattle. It also was able to settle above the 100 DMA (105.05). This long-term support needs to hold to get some positive movement going forward. A failure to do so could see some nasty selling in Cattle and keep cash in the doldrums. A breakout above the Tuesday high would be a great way to support the cash market and get futures moving to higher price levels. Cutouts have been falling but we should see some strength come back as retailers get there seasonal buying going. We’ll see…. Support is 104.85 – 104.20, the 200 DMA, 103.00 and then 101.625. Resistance is at 106.025, 107.30 and then 108.65.
Boxed beef cutouts were mixed with choice cutouts up 0.86 to 210.60 and select down 0.17 to 191.67. The choice/ select spread widened to 18.93 and the load count was 190.
Tuesday’s estimated slaughter is 121,000, which is above last last’s 120,000, and last year’s 119,000. The weekly total (so far) is 239,000 which is above last week’s 237,000 and last year’s 236,000.
The USDA report LM_Ct131 states: Thus far for Tuesday negotiated cash trading has been limited on light demand in all major feeding regions. In the Southern Plains a few live purchases traded steady compared to Monday at 106.00. In Nebraska and the Western Cornbelt not enough purchases for a full market trend. Last week in Nebraska last week live purchases traded at 108.00 and dressed purchases traded at 169.00. Last week in the Western Cornbelt live purchases traded from 105.00-107.00 and dressed purchases traded from 167.00-168.00.
Trade Suggestion(s)
Hogs – Buy the June 100 call and sell the June 110/100 put spread for negative 860.
Risk/Reward
Max risk is $560.00 per contract plus commissions and fees.
Futures N/A
Options N/A
For those interested I hold a weekly grain (with Sean Lusk) and livestock webinar on Thursdays (except holiday weeks) and our next webinar will be on Thursday, October 22, 2020 at 3:00 pm. It is free for anyone who wants to sign up and the link for sign up is below. If you cannot attend live a recording will be sent to your email upon completion of the webinar.
**Call me for a free consultation for a marketing plan regarding your livestock needs.**
Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
Direct: 312.957.4163
888.391.7894
Fax: 312.256.0109
www.walshtrading.com
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (WTI) shall be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.