Walsh Trading Daily Insights
Commentary
July Lean Hogs opened lower, down ticked to the session low at 86.975 and then rallied the rest of the session to the high at 90.20, a new high for the up move. It settled near the high at 89.625. The July contract has rebounded convincingly since making a low back on May 26th at 74.025. It has breached long-term moving average resistance, tested it and moved away from with Friday’s rally. Resistance has now been taken out at the 88.325 resistance level and approached its next level at 90.40. Improving cash fundamentals and rising cattle cash prices (both cash and cutouts) has aided sentiment. We are into the grilling season and with beef cutouts surging, traders seem to be hoping grocers will feature pork more and move more product and drive cutouts higher going into the summer. Slaughter is going down, we are slightly below last year this week and weights are down from last year, pressuring production of pork. Exports have been great, even with the slowdown in sales in the past couple of weeks. This is all positive for hog futures for the moment, but we still don’t know the effect Prop 12 will have going forward. So, there is still danger in the marketplace. The Supreme Court said Congress will have to dictate what will happen with this law and there is a desire in Congress to tackle the California overreach, so we’ll wait and see what happens. If settlement holds and price pushes past resistance at 90.40, Hogs could move towards resistance at 92.375. Resistance then comes in at 93.50. If price can’t survive settlement, we could consolidate and test support at 88.325.
The Pork Cutout Index down ticked and is at 85.90 as of 6/08/2023.
The Lean Hog Index increased and is at 83.80 as of 6/07/2023.
Estimated Slaughter for Friday is 458,000, which is below last week’s 466,000 and above last year’s 447,000. Saturday slaughter is expected to be 48,000, which is below last week’s 119,000 and above last year’s 19,000. The estimated total for the week (so far) is 2,363,000, which is above last week’s 2,028,000 and below last year’s 2,366,000.
August Feeder Cattle is under the auspices of a Bearish Engulfing Candlestick formation. The past two days saw price test resistance at 240.875 and pull-back. Friday’s high was 240.90. The pullback saw price test support at 237.25, making the low at 236.825 and then come back to settle above support at 239.00. The recovery took price past the key level at 238.35, creating a Doji candlestick, indicating indecision in the market. Feeders are in an uptrend and the cash index is also rising, especially in the past couple of weeks. Many have expected the cash market and therefore the index to fold and it hasn’t. It has been accelerating as “fomo” has taken over in the cash market. You need cattle to play and with futures so high and ignoring previous low index pricing all areas of Feeder buying has climbed. This wasn’t expected. Will there be a point that proves to be too high…. Probably… But the two feeder auctions this week seem to have been strong and we will likely see continued strength in the index, in my opinion. This is supportive for futures and with a rising 21-DMA now at 235.825 just below the low; a strong case could be made for a challenge of the high at 245.175 and a dismantling of the Bearish Engulfing candle. So, in my opinion the rising 21-DMA will be important to the near-term direction of Feeder Cattle. Right near the 21-DMA is a key level at 235.95. A failure below here could see price breakdown and test support at 234.475, 233.10 and then 231.175. If resistance at 240.875 is taken out, we could challenge resistance at 242.475 and then the 245.175 high. The all-time high (lead contract) on my continuous chart is nearby and stalled the rally at 245.75. We’ll see what happens if that is breached.
The Feeder Cattle Index surged and is at 226.18 as of 6/08/2023.
August Live Cattle is also operating under a Bearish Engulfing candlestick and it breached support at the rising 8-DMA now at 172.45. The follow-through to the downside took price to the Friday low at 170.95. It was able to bounce and settle at 171.85, still below the 8-DMA. It is also back below the previous all-time high (lead contract) on my continuous chart at 172.75 after a whirl wind rally that took price to a new all-time high on June 7th at 178.10. This keeps the pressure on bulls to recapture the price action as the next target for bearish players is the rising 13-DMA now at 168.25. The cash market remains strong, but traders and producers are always fearful of packers regaining control of the market. Some believe the bidding up of cash and the buying at high prices with time could be a ploy of packers to get numbers behind them to get control of the price action down the road and drive price downward. Producers are both optimists and fatalists at the same time, in my opinion. They wouldn’t be producers if they didn’t think price would go up, but they always think something will happen to keep that from occurring. But they are willing to play…. Cutouts have been driven to levels that could hamper demand for beef as grocers could be reluctant to promote beef after paying up on their end. Slaughter has been reduced, could it be lack of cattle or packers pushing for heavier cattle for production and to back up supply? We’ll see… Exports have been good up to now but are slowing with the higher prices. Import queries are being made as importers are looking to bring in cheaper beef. Paraguay wants to be on the list but is facing opposition due to hoof and mouth disease. If price can reclaim 172.75, we could test resistance at 174.425. Resistance then comes in at 175.95.
Boxed beef cutouts were higher as choice cutouts surged 4.20 to 332.93 and select increased 1.61 to 305.71. The choice/ select spread widened and is at 27.22 and the load count was 81.
Friday’s estimated slaughter is 120,000, which is below last week’s 124,000 and even with last year. Saturday slaughter is expected to be 6,000, which is below last week’s 67,000 and last year’s 48,000. The estimated total for the week (so far) is 621,000, which is above last week’s 573,000 and below last year’s 671,000.
The USDA report LM_Ct131 states: So far for Friday in Kansas negotiated cash trading has been moderate with good demand. Compared to last week live purchases traded 6.00-8.00 higher at 186.00. In Nebraska negotiated cash trading has been slow with light demand. Compared to the last reported market on Wednesday live purchases traded 1.00-2.00 lower at 189.00. Not enough dressed purchases for a market trend. Wednesday was the last reported dressed purchase market at 300.00. In the Western Cornbelt negotiated cash trading has been limited on light demand. In the Texas Panhandle negotiated cash trading has been mostly inactive with very light demand. Not enough purchases in these two regions for a market trend. Thursday was the last reported market in the Texas Panhandle with live purchases at 185.00. Wednesday was the last reported market in the Western Cornbelt with live and dressed purchases trading at 190.00 and from 298.00-300.00, respectively.
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
888.391.7894
Fax: 312.256.0109
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