Walsh Trading Daily Insights
Commentary
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Hogs Creep Higher, Cattle Markets Pull Back
December Lean Hogs opened lower and made an early attempt to rally to a new high that failed, sending prices lower to the low of the day at 76.80. The low tested support at the rising 13-DMA now at 76.875 and was able to reverse direction and grind higher the rest of the session. It made a new high for the up move at 78.475 and settled near the high at 78.275. Slaughter levels continue to be lower than last year’s levels causing traders to believe the Hogs and Pigs report showed faulty numbers at the 180# and over weight class. This has led to a stronger than expected cutout hanging in the mid-90’s and starting to creep higher. This is also causing cash hogs to find support and it looks like the Lean Hog Index is bouncing back and may overtake the 84 handle again this week. Demand has also been strong with exports leading the way even as the US Dollar strengthens. The support for cash prices and lower slaughter levels are anti-seasonal and bullish traders are getting more confident every day. The price action formed a bullish outside day candle and a rally past the Monday high could take price up towards our next resistance level. The market came back as traders realized cutouts were moving higher and are thinking maybe it will continue to go higher. I think this will depend on our exports as our supply should eventually fall in line with the seasonals. This could pressure cutouts and the cash market and with a large long position from the funds, cause price to pullback as profit -taking may commence. If price breaks down from settlement, it could test support at the 77.80 and then the 50-DMA now at 77.45. A breakdown from here has support at rising 8-DMA now at 77.10. The 13-DMA is next and support then comes in at 76.175. If price takes out the Monday high, we could test resistance at 78.80. Resistance is next at 79.80.
The Pork Cutout Index increased and is at 95.35 as of 10/18/2024.
The Lean Hog Index increased and is at 83.96 as of 10/17/2024.
Estimated Slaughter for Monday is 488,000, which is above last week’s 473,000 and last year’s 486,162.
January Feeder Cattle opened unchanged and ticked to the high at 245.60. It broke down from the high to the low at 243.925 and then consolidated the rest of the session to settle near the low at 244.25. Traders couldn’t take price above resistance at 245.75 on Monday as they are getting somewhat cautious that Feeders are nearing a top. Futures are trading at a discount to the index and it pulled back from Friday’s new recent high and may have peaked. Volume was light as Futures traders are wary as we are near the all-time highs. They remember the collapse in the futures and then the cash last September/ October. With funds long the market and with a decent long position in place, someone else may have to light the fire to push price higher. If price holds settlement, it could re-test resistance at the 245.75. Resistance then comes in at the 21-DMA now at 246.90. A breakdown settlement could see a test of support at 242.475. Support then comes in at the rising 50-DMA now at 241.925.
The Feeder Cattle Index decreased and is at 250.26 as of 10/18/2024.
December Live Cattle opened unchanged, made the high at 187.475 and then broke down to the low at 186.525. It drifted the rest of the session, settling near the low at 186.825. The price action formed an inside candlestick as it was unable to pressure Friday’s high and low as traders wait for the showlist to come out. This is with good strength in the cutout as the packer, with its reduced slaughter numbers have taken back control of the retail end of the trade. They are now looking to take it to the producer and get their profit margins back to lofty levels. Producers, knowing the cutout is at high levels and numbers are tight will be combating the packer and try to press prices higher. Last week was a win on all ends for the packer with cutouts showing strong gains while cash prices crept higher. They were able to control the action last week as futures waivered. The packer hopes to see continued stagnation in the futures price to keep the producer on edge. Futures are at strong resistance as we are in a massive triangle on my continuous chart with strong upside potential if a break out above the trendline ensues. Right now, traders are respecting resistance and price is consolidating just below it. The trendline is at 188.05 for Tuesday’s trade and will likely need a couple of settlements above it to inspire bulls. There is also strong resistance just below it at 187.725 which is limiting the upside. Support is at the rising 21-DMA now at 186.30. If price can’t hold settlement, it could test support at the rising 21-DMA. Support then comes in at 185.75. If settlement holds, we could see price re-test resistance at 187.725. Trendline resistance then comes in at 188.05. A rally past here could test resistance at 190.075.
Boxed beef cutouts were higher as choice cutouts increased 2.21 to 322.86 and select increased 2.01 to 296.21. The choice/ select spread widened and is at 26.65 and the load count was 118.
Monday’s estimated slaughter is 120,000, which is even with last week and below last year’s 124,928.
The USDA report LM_Ct131 states: Thus far Monday in all trading regions negotiated cash trade has been at a standstill. Last week in the Southern Plains live FOB purchases traded at 188.00. In Nebraska and Western Cornbelt last week live purchases traded from 187.00-188.00, while dressed purchases traded at 296.00.
The USDA is indicating no cash trades for live cattle and on a dressed basis (so far).
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Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
Direct: 312.957.4163
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