Walsh Trading Daily Insights
December Lean Hogs gap opened lower and broke down to the session low at 65.825. Cutout prices have fallen this week and it seems traders fear that China is out of our market. We get the export sales report before the open and this will either confirm or disprove that notion. The reality is that cutout prices have fallen and are coming back to normal levels for this time of year, in my opinion. The Lean Hog Index is still way above the December futures so one or the other will have to change direction. There is some positive news for the market. The US has come to an agreement with Vietnam for Vietnam to purchase $500 million of pork over 3 years. So far this year Vietnam has bought $35 million of pork from the US. German ASF cases have reached 94, but all have been in wild boar. The December Hogs settled at 66.375. Settlement was below support at 66.55 and the rising 21 DMA AT 66.61. Lets hope for an excellent Sales report to inject some optimism in the Hog market. A weak number could see price continue south and test the Monday low at 65.30. Taking out the Low could indicate a short-term down-trend developing. Support then comes in at 64.80. Resistance is at 66.55, the 21 DMA, Trendline (66.875), and then 67.80.
The Pork Cutout Index fell and is at 93.81 as of 10/27/2020.
The Lean Hog Index decreased and is at 77.47 as of 10/26/2020.
Estimated Slaughter for Wednesday is 492,000 which is even with last week and above last years 476,000. Slaughter for the week (so far) is 1,471,000 which is above last weeks 1,457,000 and last years 1,459,000.
January Feeder Cattle inched past the October 19 breakdown candle high (129.75) making the session high at 130.125 and it settled above it at 129.95. This is a positive development for Feeders but it is still so close to the high of the breakdown candle. Any pullback into the candle could be seen as just extending the trading range. We need a solid open on Thursday and a nice push higher to get really excited about price possibly continuing higher. The good thing for this potentiality is that corn prices could have topped for the short-term, in my opinion. If corn continues lower it could buoy Feeders and reset price. Well see Support is at 129.65, 128.875, 127.575 and then 125.90. Resistance is at 131.10, 132.025 and then 133.50.
The Feeder Cattle Index decreased and is at 133.32 as of 10/27/2020.
December Live Cattle opened lower and traded once again below the 200 DMA (103.42) to the low at 102.85. This also brushed past the 103.00 support level. Once again support held and price grudgingly rallied reaching the high at 105.025. This is just past resistance at 104.85 and below the rising 100 DMA (105.46). Price settled below these levels at 104.675. This keeps pressure on Cattle in my opinion. Cattle needs to break out above the 100 DMA or the consolidation and frustration will continue. A new low would not be good in my opinion. The low is at 102.525 and breaching this could see things get ugly in the cash market. As it is, even with a higher futures market, there were live cash trades at 101.00 today. It also traded as high as 106.25. Dressed Cattle saw trades at 158.00 -160.00. Support is at 104.20, the 200 DMA, 103.00 and then 101.625. Resistance is at 104.85, the 100 DMA (105.46), and then 106.025. Cutouts remain unseasonably weak but the load count has been high.
Boxed beef cutouts were mixed with choice cutouts down 0.91 to 205.79 and select up 0.91 to 189.58. The choice/ select spread narrowed to 16.21 and the load count was 173.
Wednesdays estimated slaughter is 118,000, which is below last weeks 121,000 and even with last year. The weekly total (so far) is 350,000, which is below last weeks 360,000 and above last years 347,000.
The USDA report LM_Ct131 states: Thus far for Wednesday negotiated cash trading has been mostly inactive on light demand in all feeding regions. Not enough purchases in any region for a full market trend. Last week in the Southern Plains live purchases traded at 106.00. Last week in Nebraska live purchases traded at 105.00 and dressed purchases from 162.00-166.00. In the Western Cornbelt last week, live purchases traded from 103.00-105.00 and dressed purchases from 163.00-165.00.
Hogs Buy the June 100 call and sell the June 110/100 put spread for negative 860.
Max risk is $560.00 per contract plus commissions and fees.
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, October 29, 2020 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.
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Senior Market Strategist
Walsh Trading, Inc.
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