Walsh Trading Daily Insights
October Lean Hogs broke out to a new high for the recent up move on Wednesday, trading up to 101.00, while making the low at 99.80. It settled near the high at 100.85. It was another breakout session for the hogs after consolidating within Monday’s trading range on Tuesday. This time pulling away from the key level at 100.075 and settling well above it. This is a positive for the market and keeps resistance at 101.975 in traders cross-hairs. Traders took price higher as cash fundamentals remain strong and with the steep discount in the October contract to the index as August nears expiration, October continues to play catch-up to the index. This is defiance of convention as price usually declines during this time period as supplies lengthen and weights go higher. Not this summer however as weights are declining… 1 # below last week and 2.8 # below last year. Demand for pork remains high as pork cutouts are stronger than expected and there is talk that packers are filling slaughter slots by pulling hogs forward. This could indicate supplies aren’t building as expected. Plus, we had China buying a large amount of pork from the US last week and if Thursday’s export sales show China in again it could be the start of a trend. China’s production has fallen, their pork prices has surged as demand has surprised and farmers are holding back pigs, they may be rebuilding the herd again. If settlement holds, we could move towards resistance at 101.975. Resistance then comes in at 104.35. A break down from settlement could see price re-visit support at 100.075 and a failure from here could see price test support at 98.475.
The Pork Cutout Index decreased and is at 124.62 as of 8/09/2022.
The Lean Hog Index increased and is at 122.25 as of 8/08/2022.
Estimated Slaughter for Wednesday is 474,000, which is above last week’s 469,000 and even with last year. The estimated total for the week (so far) is 1,406,000, which is above last week’s 1,349,000 and last year’s 1,401,000.
September Feeder Cattle bounced back strong after Tuesday’s decline took price down to support at 182.70. It dipped below support at the open to the low at 182.05 as corn prices were strong and it recovered in spite of corn strength in the early going. As corn pulled back from its high, Feeders took off and erased Tuesday’s loss, creating a bullish outside candlestick with its high at 185.275. Settlement was just under the high at 185.00. The high and settlement was above resistance at 184.375, keeping resistance at 185.80 and the Monday high at 186.25 within reach. The Feeder index continues to inch higher, emboldening bulls. The index (see below) is at a new high and continues to surprise. Feedlots have been very aggressive buying cattle as worries over declining supply outweigh strong feed costs. Feedlots need to keep cattle coming in as they sell fats and are hopeful, optimistic, desperate to see fat cash prices surge in the coming months. If Feeders can hold settlement, we could see price test resistance at 185.80 and then move towards resistance at 187.20. Resistance then comes in at 188.95. A failure from settlement could see futures test support at 184.375. Support then comes in at 182.70.
October Live Cattle also had a good day on Wednesday. It recovered from Tuesday’s breakdown, once again trading above the key level at 144.025 as it continues to revolve around this level. It made the low early at 143.30 and the high at the end of the session at 144.575. Settlement was near the high at 144.475. Packers have been more aggressive in their purchases and prices look to average higher than last week. Strength is in Iowa and Nebraska while Texas and Kansas regions continue to be a drag, but look stronger than last week. Cutout prices continue to trade in the mid 260’s with the load counts shrinking when cutouts near 270 and lengthen when prices reverse and near 260. It seems retailers are comfortable at these lower levels as they could continue to feature beef at levels consumers will buy and packers are still making huge margins, enabling them to continue the slaughter pace in my opinion. If cattle can hold settlement, we could see price test resistance at 145.225 and then work its way towards resistance at 146.825. A failure from 144.025 could see price once again pull back towards support at 142.225. Support then comes in at 140.175.
Boxed beef cutouts were lower as choice cutouts decreased 1.50 to 263.23 and declined 0.62 to 237.08. The choice/ select spread narrowed and is at 26.15 and the load count was 123.
Wednesday’s estimated slaughter is 126,000, which is above last week’s 124,000 and last year’s 116,000. The estimated total for the week (so far) is 371,000, which is below last week’s 372,000 and above last year’s 347,000.
The USDA report LM_Ct131 states: So far for Wednesday in Nebraska and Western Cornbelt negotiated cash trading has been slow on light to moderate demand. In Nebraska, a few, live and dressed purchases have traded at 146.00 and 229.00, respectively. In the Western Cornbelt, a few, live purchases have traded at 146.00. However, not enough purchases in either region for a full market trend. For the prior week in Nebraska live and dressed purchases traded from 140.00-143.00 and at 227.00, respectively. For the previous week in the Western Cornbelt live purchases ranged from 141.00-147.00 and dressed purchases ranged from 225.00-232.00. Thus far for Wednesday in the Southern Plains negotiated cash trading has been mostly inactive on light demand. Not enough purchases for a market trend. Last week in the Texas Panhandle live purchases traded from 135.00-136.00. In Kansas last week live purchases traded at 136.00.
The USDA is indicating cash trades for live cattle from 136.00 – 146.00 and from 227.00 – 232.00 on a dressed basis (so far).
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, August 11, 2022 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.
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Senior Market Strategist
Walsh Trading, Inc.
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