Walsh Trading Daily Insights
Commentary
July Lean Hogs opened lower and then rallied to a new high for the up move. It reached 88.725 and then reversed course, trading to the low at 86.25, and then consolidated the rest of the session to settle at 86.925. The early rally took price back to resistance at 88.325 and price wasn’t able to sustain its success. The failure took price down to support at the 50, 100 and 200-DMAs. The 50-DMA is where the selling stopped and it is at 86.175, with the 100-DMA at 86.00 and the 200-DMA at 85.95. These must hold or we could crater Hogs. Below here is support at 85.325 and the gap from 85.25 – 85.00. There is uncertainty in the market with the enforcing of Prop-12 starting on I believe, July 1st. Could the cutout run up we have seen be retailer buying as much pork as they can before the enforcement. I don’t think anyone knows how much compliance with the law there is and what will develop in the US market as a result of this law. At least one Canadian company has asked the Canadian government to intervene and challenge the law in NAFTA. I think Mexico is also looking at this. How does California enforce this and what happens to pork prices in that state. Do we get a two-tiered market in the states? Will you let California inspectors on your property? Do you register or certify your operation with California and let them control your business?…. Yuck… We’ll see… If settlement holds, we could revisit resistance at 85.325. Resistance then comes in at 87.10.
The Pork Cutout Index increased and is at 85.94 as of 6/06/2023.
The Lean Hog Index increased and is at 81.86 as of 5/31/2023.
Estimated Slaughter for Wednesday is 462,000, which is below last week’s 480,000 and last year’s 478,000. The estimated total for the week (so far) is 1,398,000, which is above last week’s 963,000 and below last year’s 1,427,000.
August Feeder Cattle opened higher and traded to a new high for the up move, reaching 245.175 on Wednesday. The rally stalled below the all-time high on the continuous chart at 145.756 and then traders started to feel the fear…. The fear of missing the sale at the high… they started selling in a ferocious manner and took price down hard. August trade down to 238.55 and settled near the low at 239.10. The price action formed a Bearish Engulfing candlestick which could lead to more selling going forward. Such a big breakdown could see some consolidation but unless we take out the high the bearish candle remains in place and the odds are for a test of support at the 21-DMA which is rising and is now at 234.55. The last big break took us to the 21-DMA back on May 8th before continuing its uptrend. And … that is the key… we are in an uptrend and the odds favor the market continuing in the uptrend after the potential pull-back. If the Bearish Engulfing pattern fails to lead to lower prices and the market makes a new high, it could gather steam and move towards the magical 250.00 level. The index is rising, but we are still rich to the index. We have 2 cash auctions this week that could set the tone for futures going forward.
The Feeder Cattle Index increased and is at 219.28 as of 6/06/2023.
August Live Cattle gap opened higher and surged to an all-time high on the continuous chart at 178.10. Once again, the fear of missing selling the high won out and it looks like traders said dang it, I missed the high get me out, while the rally was dammit, I can’t take it any more get me out of my shorts. The contra attitudes took price down hard as guys short wasn’t going long at the highs and the sellers, frustrated just said get me out and price collapsed from the high, in my opinion. The selling took price down to the low at 172.60, which is just below support at 172.75, support held, and it settled at 173.20. The cash market didn’t care about the failure in futures and it maintained its strength, making new highs in the dressed arena at 300.50 and on a live basis at 194.00. The low for the week in the cash market is at 180.00, well above the futures settlement. Futures are still trading at a discount to the lowest cash price and could limit downside in the futures. That said… the price action in the futures formed a Bearish Engulfing candlestick pattern and could see more liquidation in futures. This is healthy for the price action as the run up in price was steep and a pullback wouldn’t damage the uptrend, in my opinion. A failure to hold settlement could see a pull-back towards support at the rising 8-DMA now at 170.95. Support then comes in at 170.375. If settlement holds, we could test resistance at 174.425. Resistance then comes in at 175.95.
Boxed beef cutouts were higher as choice cutouts jumped 3.17 to 325.19 and select increased 2.12 to 301.56. The choice/ select spread widened and is at 23.63 and the load count was 119.
Wednesday’s estimated slaughter is 124,000, which is below last week’s 127,000 and last year’s 125,000. The estimated total for the week (so far) is 370,000, which is above last week’s 255,000 and below last year’s 374,000.
The USDA report LM_Ct131 states: Thus far Wednesday negotiated trade was light on good demand in Nebraska and the Western Cornbelt. In Nebraska compared to last week early dressed purchases traded 8.00-15.00 higher mostly at 300.00. A few live purchases traded from 188.00-194.00 however not enough for an adequate market test. The latest established live market in Nebraska was last week with purchases from 183.00-189.00. In the Western Cornbelt compared to Tuesday, live purchases traded steady at 190.00. A few early dressed purchases traded at 300.00 however not enough for an adequate market test. Dressed purchases last week in the Western Cornbelt traded from 288.00-292.00. Trade was very limited on moderate to good demand in the Southern Plains, however not enough to for an adequate market test. The latest established market in the Southern Plains was last week with live purchases in the Texas Panhandle from 175.00-180.00 with live purchases in Kansas from 178.00-180.00.
The USDA is indicating cash trades for live cattle from 180.00 – 194.00 and from 290.00 – 300.50 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, June 08, 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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