Commentary
December Lean Hogs opened higher and quickly turned south to the session low at 63.60. This took out the November 2nd low at 64.10 and further entrenches a bearish theme to the Hog market. We are making lower lows and lower highs as news that pork prices in China continue to fall and it has imported 2,000 breeding sows into the country. The falling prices and the continued importing of breeding sows have traders thinking China will slow down the pace of its pork imports going forward as it is getting its pork supply up to historic norms. Export sales is pushed back to Friday due to the Veteran’s day holiday, so we will have to wait and see if their near-term needs are also shrinking. The price breakdown in Hogs didn’t last long and it recovered and traded up to the session high at 65.775. Price meandered lower and it settled at the key level 64.80. The rally and settlement have kept price in the consolidation range with the high at 67.60 and today’s low as the low. The session formed another small bodied candle, indicating to me that even though price is on a downward lean, any positive news could reverse the lean and get traders thinking higher, in my opinion. Settlement was below the rising 50 DMA (64.975) and right at support at 64,80. If Hogs and hold this area, maybe we can see a pop to test trendline resistance now at 66.625. Resistance then comes in at the 21 DMA at 67.125, the consolidation high and 67.80. This is a lot for Hogs to maneuver past. A failure from settlement could see price revisit the low and support at 63.325. Support then comes in at 61.80. Our export business is doing well, even without China and we have an agreement with Vietnam to increase its purchases of our pork going forward. This will help take some of the sting out of losing some China business, but if the USDA is right, we still have a lot of supply to work through.
The Pork Cutout Index was unchanged and is at 84.13 as of 11/10/2020.
The Lean Hog Index up-ticked and is at 71.25 as of 11/9/2020.
Estimated Slaughter for Wednesday is 459,000 which is below last week’s 489,000 and last year’s 493,000. The weekly total (so far) is 1,445,000, which is below last week’s 1,475,000 and above last year’s 1,430,000.
January Feeder Cattle opened unchanged and up-ticked to the session high at 140.675. With corn prices near the session high traders let go some positions and Feeders broke down to the low of the day at 138.75. Corn started to breakdown and Feeder’s grinded higher the remainder of the session and settled at 140.20. Feeder’s also formed a small bodied candle and it traded between resistance at 140.775 and just below support at 138.95. It is in the upper end of Monday’s big rally candle and the 100 DMA is helping provide support at 138.80. It settled above trendline resistance (140.125 for Wednesday) and another push lower in corn could reignite Feeders. If corn recovers, we will probably see more consolidation within the Monday range. If Feeders can stay above the downward sloping trendline (139.95) on Thursday a test of resistance at 142.40 is possible. Resistance then comes in at 143.50 and then 144.25. The bullish Wolfe Wave pattern is in full swing and the objective for the pattern is now at 148.35. A breakdown below the trendline could see price test support at 138.95, the 100 DMA (138.80) and then 136.75.
The Feeder Cattle Index ticked higher and is at 135.97 as of 11/10/2020.
December Live Cattle opened lower and traded down to the low at 111.20 early and grinded higher to a new high for the up move at 112.70. This is just above resistance at 112.35 and it settled near the high and above resistance. Settlement was at 112.40. The strength in futures has caused producers to want cash prices to trade at a better price than what has traded on the fedcattleexchange.com auction. The public auction saw trades take place at 110.00 and 110.25. Producers passed over these prices and the remainder of the auction went unbid as packers didn’t fall in line and get more aggressive. It looks like there will be another auction on the exchange on Thursday morning. The Western Cornbelt had a trade at 108.00 today, away from the auction. Last week’s average prices showed Iowa at the low end at 105.18 and most other major regions at 107.00. The 108.00 trade is approx. $3 higher than last week’s average in Iowa. This could embolden packers into playing hardball with producers. Producers are taking a big gamble with cash prices. If price can hold settlement a move towards resistance at 113.90 is possible. Resistance then comes in at 114.65. A failure from 112.35 could see price pullback to support at 110.80. Support then comes in at 109.60 and then 108.65.
Boxed beef cutouts were mixed with choice cutouts up 0.59 to 222.84 and select down 0.09 to 208.46. The choice/ select spread widened to 14.38 and the load count was 147.
Wednesday’s estimated slaughter is 115,000, which is below last week’s and last year’s 119,000. The weekly Total (so far) is 352,000, which is below last week’s 359,000 and above last year’s 351,000.
The USDA report LM_Ct131 states: So far for Wednesday negotiated cash trading has been at a standstill in the Southern Plains and Nebraska. In the Western Cornbelt negotiated cash trading has been mostly inactive on very light demand. Not enough purchases for a market trend. 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
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, November 12, 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.