Walsh Trading Daily Insights
July Lean Hogs continued on its destructive path on Tuesday. It opened higher and made the session high at 82.475. It fell apart and traded to the session low at 79.725 by 9:40 AM CT. It rebounded and settled at 80.975. The pessimism in the Hog market is unnerving. The cash market has been climbing, seeing its seasonal rally but from lower levels and at a slow pace and the futures market overestimated its potential, in my opinion. Futures became over-extended, and rallies failed, finally converging to the index instead of the index surging to the futures level. The large premium to the cash index… It is gone… Futures and cash are now tight, and it will take an impressive rally in the index to ignite the bullish flame……in my opinion. The market is most likely suffering from weak domestic consumer demand, especially when one compares recent robust export sales to the depressed levels seen in spring 2022. It may be grocers’ strong commitment to featuring beef this spring, while using elevated pork prices as a profit-center, is stifling consumer pork demand and keeping a lid on the hog and pork complex. Putting both packers and producers behind the eight ball, in my opinion. This could change in the near term as we are seeing more features but is it too little too late? The breakdown took price below support at 80.40 and 79.80. The recovery put price just above 80.40. If futures can hold settlement, we could see a test of resistance at 81.70. Resistance hen comes in at 83.325. A failure at 80.40 could see a retest of support at 79.80. Support then comes in at 78.80.
The Pork Cutout Index ticked higher and is at 83.90 as of 5/22/2023.
The Lean Hog Index increased and is at 79.57 as of 5/19/2023.
Estimated Slaughter for Tuesday is 481,000, which is above last week’s 470,000 and last year’s 476,000. The estimated total for the week (so far) is 954,000, which is above last week’s 934,000 and last year’s 938,000.
August Feeder Cattle traded lower on Tuesday, making the high at 235.20 and the low at 233.325. It settled at 233.475. Corn strength could have been a reason for the decline, and it could also be that the strong rally we have seen in the Feeder Cattle might be over-extended and is in need of a pause. It is the second day in a row of consolidation below the Friday high at 235.725 while testing and holding support at 233.10. The futures price is trading at a stiff premium to the index and lots of time when the rubber band is stretched…. So, watch the index and even though it is strong, it has a long way to go to catch the futures. Futures converge to cash by the end of its contract life, so we need a steady upward trend in the cash market and futures enthusiasm could wane just like the Hog market. If price can hold settlement, we could see price test resistance at 234.475. Resistance then comes in at 235.95. A failure below 233.10, could take price back down to support at 231.175. Support then comes in at 229.825.
The Feeder Cattle Index jumped and is at 206.76 as of 5/22/2023.
August Live Cattle continues to struggle as it is unable to break higher and help the producers cause. The seasonality of bigger numbers available is overtaking the reality of lower numbers in the feedlots. Packers, with the exclusion of the past couple of weeks has been able to keep slaughter down and cutouts high, leading traders to think that the cash highs are in and are not looking to press the issue in the futures market, in my opinion. The Tuesday range showed a high at 164.15 and the low at 162.50. Settlement was near the low at 162.575. Settlement was below support at 162.725 which could lead to follow-through to the downside if bulls can’t hold the line. A breakdown from here has support at the 50-DMA now at 162.05 and then 161.75. If price can overcome settlement, we could revisit the Tuesday high. Resistance then comes in at 164.90.
Boxed beef cutouts were lower as choice cutouts fell 3.16 to 300.74 and select decreased 2.15 to 281.28. The choice/ select spread narrowed and is at 19.46 and the load count was 126.
Tuesday’s estimated slaughter is 126,000, which is below last week’s 127,000 and even with last year. The estimated total for the week (so far) is 251,000, which is below last week’s 253,000 and even with last year.
The USDA report LM_Ct131 states: So far for Tuesday negotiated cash trading has been inactive with very light demand in the Southern Plains and Western Cornbelt. In Nebraska negotiated cash trading has been limited very light demand. Not enough purchases for a market trend. The latest established market was last week in all regions. In the Southern Plains live purchases traded at 170.00. In Nebraska live and dressed purchases traded at 178.00 and from 280.00-282.00, respectively. In the Western Cornbelt live and dressed purchases traded from 177.00-180.00 and from 280.00-282.00, respectively.
The USDA is indicating cash trades for live cattle from 169.00 – 170.00 and at 280.00 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, May 25, 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.**
Senior Market Strategist
Walsh Trading, Inc.
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
tested support at the
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 not 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.