Walsh Trading Daily Insights
Commentary
October Lean Hogs made up some ground on the Lean Hog Index on Friday, making the low at 83.65 and rallying to the high at 85.30. It settled near the high at 85.025. October Hogs have been trading at a greater than normal discount to the Lean Hog Index (just like last year) as traders still worry about the effects of the upholding of Prop 12 and increasing weights and slaughter levels, in my opinion. There is also the seasonal weakness hanging over the Hogs as we head into the fall. The rally took October Hogs into the upper end of the trading range it has been in since the initial rally that took place when it became the lead contract. The high for the range is at 85.55 and the low at 81.725. The rallies have been stalling at the 85.325 resistance level and the low is just above the 81.70 support level. A breakout above 85.325 could lead to a test of resistance at the 200-DMA now at 86.75 and then resistance at 87.10. A failure to hold settlement could see price test support at 83.325.
The Pork Cutout Index ticked higher and is at 114.43 as of 7/26/2023.
The Lean Hog Index increased and is at 105.79 as of 7/25/2023.
Estimated Slaughter for Friday is 460,000, which is above last weeks and last year’s 438,000. Saturday slaughter is expected to be 82,000, which is above last week’s 32,000 and last year’s 10,000. The estimated total for the week (so far) is 2,392,000, which is above last week’s 2,316,000 and last year’s 2,292,000.
August Feeder Cattle is near the end of its life span as the lead contract. I expect September to take over early in the upcoming week. August will then be tied more closely to the Feeder Index and its volume should dip. There is a Head and Shoulders Top formation in the August contract so in my opinion rallies could fail until the H & S formation is eliminated. Feeders have been consolidating since breaking down below the rising H & S neckline. It has been stuck between resistance at 245.75 and support at 242.475. Friday’s range took price above resistance with the high at 246.075, but it could not stay there as it settled below it at 245.60. The low was at 244.775. It was the narrowest range in the past seven sessions, so volatility could increase soon. There is a confluence of resistance around the 245.75 resistance level so a rally above here could send price up to resistance at 248.85. A failure below the low could send price back towards support at 242.475. The potential objective for the H & S formation is a trade down to 236.925.
The Feeder Cattle Index increased and is at 242.87 as of 7/27/2023.
August Live Cattle is operating under a Bearish Engulfing candlestick. It has broken down since then but, has stalled at the 179.40 support level. The past 4 sessions saw it dip below support and then settle above it. Cattle is teetering but holding. It has been waiting for the cash market to lead in my opinion, but cash has been erratic as packers are struggling to regain control of the market. They continue to cut back on slaughter and try to push up weights and make producers sweat in this recent bout of heat. But with the intense heat, weights are trickling higher and are not causing producers to relent. So, cash has been steady to slightly higher as packers waiting to the end of the week to trade has not worked well so far. This week should be around steady prices for cash but on light volume. The upcoming week could be volatile as producers have to sell and, in my opinion, packers need the cattle. The standoff has to give way at some point as retailers will be buying for the Labor Day holiday and packers will have to come up with the supply of beef to meet retailer’s needs. Maybe… Cutouts have been soft, and packers are crying they are losing money and don’t like it. They have controlled the markets for so long with the plant problems and the pandemic, most recently giving them absolute control of the market. They are used to making big dough and don’t like the color red. Even though softness prevails with the cutouts, they are still at extreme levels and can make for expensive beef for the consumer. They eventually hold the cards and could make or break the market. Demand has been relatively good as the economy has been holding. A slowdown in the economy could shift the balance towards the packer and cause headaches for producers. We’ll see… Friday’s range was from a high of 180.35 to the low at 179.25. Settlement was at 179.60. The high was just below resistance at the 13-DMA, now at 180.55. If settlement holds, price could test resistance at the 13-DMA and then the declining 8-DMA now at 180.85. Resistance then comes in at 181.175. A failure below 179.40 could see price test support at the rising 21-DMA now at 178.925. A failure from hers could see support tested at 178.10.
Boxed beef cutouts were lower as choice cutouts decreased 0.86 to 302.00 and select fell 2.22 to 277.54. The choice/ select spread widened and is at 24.46 and the load count was 101.
Friday’s estimated slaughter is 110,000, which is below last week’s 114,000 and last year’s 122,000. Saturday’s slaughter is expected to be 10,000, which is below last week’s 15,000 and last year’s 53,000. The estimated total for the week (so far) is 619,000, which is below last week’s 624,000 and last year’s 666,000.
The USDA report LM_Ct131 states: So far for Friday in the Texas Panhandle negotiated cash trading has been at a standstill. In Kansas and Nebraska negotiated cash trading has been inactive with very light demand. In the Western Cornbelt negotiated cash trading has been slow on light to moderate demand. A few Live FOB purchases traded from 185.00-186.00. However, not enough purchases for a full market trend. The latest established market in all regions was last week. In the Southern Plains Live FOB purchases traded at 180.00. In Nebraska and Western Cornbelt Live FOB and Dressed Delivered purchases traded at 188.00 and at 295.00, respectively.
The USDA is indicating cash trades for live cattle from 178.00 – 190.00 and from 288.00 – 295.00 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, August 03, 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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