Walsh Trading Daily Insights
Commentary
June Lean Hogs gap opened higher, up-ticked to the session high (106.75) and fell apart. It traded past support at 104.35 to the session low at 103.65. It bounced and settled at 104.525, which is just above support. A strong rally in corn plus worries about Thursday’s export sales report led to the decline in Hogs, in my opinion. Traders are fearful China will once again be absent from the purchasing section of the report, so after a couple of days of recovery and unable to overcome resistance at 106.85, liquidation took place. In my opinion, China’s potential absence may be a good thing because it looks like domestic demand is roaring and cutouts and cash prices are continuing to remain strong. The high cutout prices have not yet led to a softening of demand as load counts have been for the most part impressive in the face of these high prices. The service industry seems to be buying more for current needs as they fear a shut-down could come at any time so they have to be aggressive in the spot market to make sure they have product in their kitchens, keeping cutouts in firm territory. We also have a lot of product still being sent abroad due to previous buying sprees by foreign customers. And don’t forget China made a huge purchase of pork just a couple of weeks ago. They may hope fear builds and they could therefore make a big purchase at lower prices. I still believe they need to buy and take in lots of pork to satisfy their needs. They are throwing darts at the wall to try and stem the continuing ASF rampage throughout the country. From ProFarmer – China’s agriculture ministry issued a plan on Wednesday to divide the country into five regions to be charged with greater responsibility to prevent and control African swine fever, as well as other animal diseases. They will create disease-free zones within their regions and make sure no pigs apart from breeding pigs and piglets are moved in or out of their regions. I feel bad for the people in charge of these newly created zones. If price can hold above settlement, a re-test of the resistance at 106.85 is possible. Resistance then comes in at 107.925. A failure from 104.35, could see support tested at 101.975. Trade will be impacted on Thursday by the Export Sales report, in my opinion. We also get cold storage after the close on Thursday.
The Pork Cutout Index increased and is at 113.01 as of 4/20/2021.
The Lean Hog Index increased and is at 104.42 as of 4/19/2021.
Estimated Slaughter for Wednesday is 485,000 which is above last week’s 480,000 and last year’s 359,000. The estimated weekly total (so Far) is 1,455,000, which is above last week’s 1,452,000 and last year’s 1,084,000.
August Feeder Cattle opened at the high of the day at 154.925 It collapsed and traded down to the session low at 151.65. It settled nearby at 151.925. Traders are becoming increasingly worrisome about the rising corn prices. With corn rising and hay also moving higher, cattle feeders are facing a tough time and difficult decisions. Their costs are rising and fat cattle is struggling. What do you pay for cattle to raise and make a profit come slaughter time? Frustration is building. This is putting pressure on futures prices as the Feeder cattle index is breaking down and August futures are very rich compared to the index. Cash prices could rally, but would you be an aggressive buyer of with inputs at extreme levels and showing no signs of a top? The low was just above support at 151.55. A failure from 151.55 could see price test support at 149.975. Support then comes in at 148.40. price can rally above 152.30, we could see a re-test of resistance at 153.50 and then 154.25.
The Feeder Cattle Index decreased and is at 138.33 as of 4/20/2021.
June Live Cattle opened at the key level at 119.375, up-ticked to the session high at 119.40 and then nose-dived. It traded down to 116.925 and settled nearby at 117.25. The low is just above support at 116.55. The breakdown took price below the rising 100 DMA (118.80) and the 117.825 support level. The weak close keeps the pressure on the market. Price must reclaim the 100 DMA or else. The settlement below the 100 DMA puts cattle in a technically weakened condition, in my opinion. A failure from 116.55 could see price make its way down to support at 114.65. If price can rally past resistance at 117.825, a test of the 100 DMA is possible. Cutout prices are at record levels if you exclude last year’s pandemic surge above $450.00. Cash prices are doing better than futures and the extremely strong cutout prices has the packing industry laughing all the way to their banks.
Boxed beef cutouts increased as choice cutouts rose 2.20 to 280.46 and select increased 1.41 to 271.88. The choice/ select spread widened to 8.58 and the load count was 114.
Wednesday’s estimated slaughter is 120,000, which is above last week’s 115,000 and last year’s 86,000. The weekly estimated total (so far) is 360,000, which is above last week’s 343,000 and last year’s 258,000.
The USDA report LM_Ct131 states: Thus far for Wednesday in the Southern Plains, Nebraska and Western Cornbelt negotiated cash trading has been limited on light demand. In the Texas Panhandle, compared to the prior week, live purchases traded mostly steady at 120.00. In Kansas, compared to last week, live purchases traded 1.00 lower from 119.00-120.00. A light test was noted in the Southern Plains. In Nebraska and Western Cornbelt a few live purchases traded at 123.00. However, not enough purchases for a full market trend in either region. For the prior week in Nebraska live and dressed purchases traded from 122.00-126.00 and at 196.00, respectively. For the previous week in the Western Cornbelt live purchases and dressed purchases traded from 122.00-124.00 and from 194.00-196.00, respectively. So far for Wednesday in Colorado negotiated cash trading has been at a standstill. Last week live purchases traded from 122.0-120.00.
The USDA is indicating cash trades this week for live cattle from 119.00 – 124.00 and dressed trades from 192.00 – 193.00.
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, April 22, 2021 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.
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