Commentary
December Lean Hogs started the week off on a positive note as it opened higher from Friday’s debacle. It broke down to the low and then surged to the session high – all in the first 4 minutes of the day. The low was 65.25 and the high was at 66.575. The rest of the session was spent consolidating mostly near the low of the day. Settlement was at 65.60. The positive Wuhan virus vaccine announcement did little for Hogs as it formed an inside candlestick, unable to generate any positive traction to get past resistance. The only good thing to say about today’s trade is we didn’t take out last week’s lows. Traders are believing that China has the African Swine Fever under control and it will be self-sufficient in pork production real soon. The reality is China seems to have made good strides in production and is moving towards modernizing it production methods. It is attempting to rid itself of family farms and is making the transition to a professional commercial producer. It is moving away from feeding pigs garbage and scraps towards feeding them corn and meal products. This is good for farmers in my opinion. However, China continues to find market pigs that have been stolen and transported from one province to another infected with the ASF disease. If these discoveries were in another country, pork trade would be stopped. So, while they may be doing a decent job in changing their production methods, they have not been able to stop the pirating and the disease is still occurring in that country. Until they are able to control people’s actions and create a vaccine for the disease, there will always be the danger of a major reoccurrence of the pandemic. December Hogs are still consolidating with the high at 67.60 and the low at 64.10. The inside candle formation could be key to trade for Tuesday. A breakout above the Monday high could see price crack resistance at 66.55 and the downward sloping trendline at 66.725 to test resistance at 67.80. Resistance then comes in at 68.75. If price falls below the Monday low, we could see price break down to test the rising 50 DMA at 64.525 and then the consolidation low at 64.10. Support then comes in at 63.325.
The Pork Cutout Index ticked higher and is at 83.82 as of 11/6/2020.
The Lean Hog Index decreased and is at 71.12 as of 11/5/2020.
Estimated Slaughter for Monday is 493,000 which is even with last week and above last year’s 444,000.
January Feeder Cattle exploded on Monday, going up limit reaching 140.925 and settling just off the high at 140.725. Feeders liked what they heard with the Wuhan virus news, believing this would lead to strong demand going forward. The bullish Wolfe Wave pattern is in full swing and the objective for the pattern is at 148.175. Price obliterated resistance at the 100 DMA (139.075) and settled above trendline resistance (140.425). If price can hold the downward sloping trendline (for Tuesday at 13975), a test of resistance at 142,40 is possible. The 200 DMA is right there also at 142.475. This could act as solid resistance. A breakdown below the trendline could see price consolidate within the Monday range. Support is at the 100 DMA, 138.95 and then 136.75. Resistance is at 140.775, 142.40, the 200 DMA and then 143.50.
The Feeder Cattle Index declined and is at 135.58 as of 11/6/2020.
December Live Cattle surged above its trading range trading to the session high at 111.95 and settling nearby at 111.825. The explosion took price past resistance at 109.60 and 110.80. The rally stopped just below resistance at 112.35. The price action exceeded the old limit of 3 handles and settlement was past the old limit levels. So, the new limits can be a positive for the cattle markets, it’s not going to always be a negative. Pfizer announced that its vaccine has a 90% effectiveness rate which simply means that 90% of the volunteers that took the drug didn’t get the infection. This announcement created excitement for the cattle markets as lockdown fears dissipated and demand surges danced in traders’ minds. No more restaurant closures, schools to reopen and stay open as people take the drug and never get sick during the potential Biden reign. The only problem is testing isn’t completed and the drug will take time to get into the system. This is good news for the market however and we will take it. Resistance is at 112.35, 113.90 and then 114.65. Support is at 110.80, 109.60 and then 108.65.
Boxed beef cutouts were higher with choice cutouts up 3.07 to 217.39 and select up 3.88 to 202.37. The choice/ select spread narrowed to 15.02 and the load count was 122.
Monday’s estimated slaughter is 117,000, which is below last week’s 119,000 and above last year’s 112,000.
The USDA report LM_Ct131 states: Thus far for Monday negotiated cash trading has been at a standstill in all major feeding regions. Last week in the Southern Plains and Nebraska live purchases traded at 107.0000 and dressed purchases, in Nebraska, traded at 167.00. For the prior week in the Western Cornbelt live and dressed purchases traded from 105.00-106.00 and 164.-167.00, respectively.
Trade Suggestion(s)
Risk/Reward
Futures N/A
Options N/A
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Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
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