Commentary
February Lean Hogs continued its slide on Tuesday, making a new low at 64.10. It rebounded off the low and traded up to the high of the day at 66.20. It met strong resistance here as the 21 and 50 DMA’s stifled the rally and it pulled back to settle at 65.60. The 21 DMA is at 66.21and the 50 DMA is at 66.25. The early decline punched through support at 64.80 and the rally off it was a positive for the market. It must punch through the moving average resistance on Wednesday or we could see price fall to another new low. Support is at 63.325 and then the November 20 low at 62.75. Trading below this low will strengthen the down trend, in my opinion and put the rising 100 DMA (61.05) as a last gasp hope to provide stability to the February contract. Breaking down from here could see price challenge the 200 DMA (58.50). A rally past the moving average resistance could see the tight gap from the 12/3/2020 low at 66.725 and the 12/4/2020 high at 66.70 close. Resistance then comes in at 67.80. The virus resurgence continues to feed demand worries as states shut down restaurants and command people to stay home. Export worries are present also as the elephant in the room (China) has curtailed purchases and have been slow to buy for next year as they expand production at home. Remember, they haven’t found a vaccine for the African Swine Fever and it could resurge at any time.
The Pork Cutout Index declined and is at 77.84 as of 12/7/2020.
The Lean Hog Index declined and is at 65.79 as of 12/4/2020.
Estimated Slaughter for Tuesday is 496,000 which is above last week’s 488,000 and last year’s 490,000. The estimated weekly total (so far) 983,000, which is below last week’s 985,000 and even with last year.
January Feeder Cattle opened lower and traded down to test support at 136.75, making the low just above it at 136.825. It recovered and traded to the session high at 138.425. This is just below resistance at 138.95. It pulled back and settled at 137.575. It formed a Doji candlestick. The failure to hold the 100 DMA (139.53) has pressured Feeder Cattle. A failure below 136.75 could see the 50 DMA (136.10) and then the 200 DMA (134.23) challenged. Support is at 136.75 and then 135.60. If settlement holds, a test of resistance at 138.95 and the 100 DMA is possible.
The Feeder Cattle Index declined and is at 137.34 as of 12/7/2020.
February Live Cattle opened lower and traded down to the session low at 110.55. The low is just below support at 110.80 and price rallied from here to the session high at 111.425. The positive price action couldn’t be sustained and price settled below support at 110.775. Price is now in the lower end of the consolidation range the February contact has been trading within since it became the lead contract. The range is from 109.00 (low) to the 114.70 (high). It formed a Doji candlestick. A rally above the high could see price test resistance at 112.35. Resistance then comes in at 113.90. A break down from settlement could see support tested at 109.60. The consolidation low is next. Weakening cutout prices and slowdowns/ shutdowns continue to plague the cattle markets.
Boxed beef cutouts were lower with choice cutouts down 5.78 to 225.02 and select down 4.06 to 205.42. The choice/ select spread narrowed to 19.60 and the load count was 228.
Tuesday’s estimated slaughter is 115,000, which is below last week’s 122,000 and last year’s 124,000. The estimated weekly total (so far) is 234,000, which is below last week’s 241,000 and last year’s 245,000.
The USDA report LM_Ct131 states: Thus far for Tuesday negotiated cash trading has been slow on light demand in the Southern Plains. In the Texas Panhandle, compared to last week, live purchases traded 2.00-4.00 lower at 108.00. In Kansas, compared to the prior week, live purchases traded 2.00 lower at 108.00. So far for Tuesday in Nebraska and Western Cornbelt negotiated cash trading has been limited on light demand. A few dressed purchases, in the Western Cornbelt, traded at 168.00. However, not enough purchases in either region for a market trend. Last week, in Nebraska, live purchases traded at 110.00 and dressed purchases traded from 172.00-174.00. For the previous week in the Western Cornbelt live purchases traded from 109.00-110.00 and dressed purchases traded at 172.00.
The USDA is reporting live trades at 108.00 and dressed from 168.00 – 170.00 for Tuesday (so far). The weekly range (so far) is live trades from 106.00 – 108.00 and dressed 168.00 – 173.00.
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, December 10, 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.
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