Walsh Trading Daily Insights
Commentary
June Lean Hogs surged, making the low at 83.825 and rallying to the high at 86.95, settling near the high at 86.15. The rally took price past resistance at 85.325, the 100-DMA at 86.35 and the 21-DMA at 86.775, stopping just shy of the 87.10 resistance level. The settlement below these levels keeps the onus on bulls as resistance held. Cash markets have been rising as both cutouts and cash hog prices have improved. That’s the problem. They have improved, but are moving at a snail’s pace to the upside. Futures are eager for a surge, but remain at extreme levels to the cash hogs. That’s why, in my opinion the market pulls back after a rally like today. Traders see the futures and the cash levels and go “wow …… futures over did it, let’s take some off”. The positive thing about today is that it didn’t collapse. The biggest problem in my opinion is the settlement below resistance. A pullback on Tuesday will put price in the lower end of the consolidation band that has developed. Monday’s rally took price to the high of the break down candle on May fifth. The rally hasn’t changed Hog direction, it just took it to the high of the consolidation band. The low is at 82.725. Futures face big hurdles. The biggest is cash prices. Hope and expectation only take you so far. Cash has to continue to rally and do so in a bigger way than it has. Traders will panic and knock prices back to reality if cash trickles higher. The 50-DMA at 87.675 is just above resistance at 87.10. This is another hurdle futures have in its way. Producers are saying that packers are being more aggressive in acquiring hogs. I’ve been told of and have seen more pork features in grocery stores. More features are needed to get pork moving out of these outlets as grocers have been doing more beef features while keeping pork relatively expensive despite the pork to beef ratio being at extremes. More features will lead to pork’s hoped for summer rally, in my opinion.
The Pork Cutout Index increased and is at 82.38 as of 5/12/2023.
The Lean Hog Index increased and is at 75.91 as of 5/11/2023.
Estimated Slaughter for Monday is 469,000, which is above last week’s 468,000 and last year’s 467,000. Friday’s slaughter was revised lower to 456,000, which lowers the estimated total for the week (so far) to 2,368,000, which is below last week’s 2,447,000 and above last year’s 2,363,000.
August Feeder Cattle continued its trek higher, rallying to 231.125 on Monday which is just below resistance at 231.175. The low came in at 228.90 and settlement was just below the high at 231.05. Feeders rallied in spite of a good rally in corn as traders remain bullish Feeder cattle. Feeders are in my opinion, expensive to the deferred Live Cattle markets, but traders don’t care. A rally past resistance could see price test the April 28th high at 232.225. Resistance then comes in at 233.10. A failure from settlement could see price come down to test support at 229.825. Support then comes in at 228.05 – 227.80.
The Feeder Cattle Index increased and is at 202.11 as of 5/12/2023.
June Live Cattle didn’t do much on Monday, trading in a range from its low at 163.575 to its high at 164.725. Settlement near the high at 164.325. It was a dull session for June, but the deferred contracts displayed a positive spin as expectations for stronger prices down the road continue to build. Slaughter levels improved last week to 646,000 as we move towards peak beef demand due to the upcoming memorial holiday and the grilling season is upon us. This could be beneficial to producers if packers continue at this rate. Cutouts have come down a bit, but I believe packers are still fairly profitable. Cash prices are expected to be steady, but if slaughter remains strong, maybe producers can get prices moving higher. I think the key would be when packers are able to get cattle bought. The last couple weeks, packers were able to get cattle bought early and at lower pricing. When packers bought later in the week, prices were higher. Hold out producers, it seems to work in your favor to sell later in the week. Supply is still fairly tight, but this is the period when more cattle are usually available for slaughter. It will be an interesting battle for control of the price action. Monday’s high was just shy of resistance at 164.90. The low was just above support at the 13-DMA at 163.45. A rally past resistance could see price test the May 1st high at 165.775. A failure from support could see price test the 162.725 support level.
Boxed beef cutouts were mixed as choice cutouts decreased 2.63 to 301.98 and select ticked higher 0.03 to 284.71. The choice/ select spread narrowed and is at 17.27 and the load count was 91.
Monday’s estimated slaughter is 126,000, which is even with last week and above last year’s 123,000.
The USDA report LM_Ct131 states: Thus far Monday negotiated cash trade was inactive on light demand in all feeding regions. Not enough purchases in any feeding region for an adequate market test. The latest established market was last week with live purchases in the Southern Plains at 170.00. Last week in Nebraska, live purchases traded mostly at 176.00 with dressed purchases at 280.00. For the prior week in the Western Cornbelt, live purchases traded from 175.00-177.00 with dressed purchases at 280.00 on a light test.
The USDA is indicating no cash trades for live cattle and 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, May 15, 2023 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
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Fax: 312.256.0109
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