Cattle Drop and Lean Hogs Pop

Live Cattle (December)

Cattle futures staged an inside day, trading within the previous day’s range. Support remains intact from 186.075-186.40. A failure here and against Tuesday’s low could open the door for additional long liquidation from Funds who have amassed a net long position of nearly 78k futures/options contracts, the largest net long since July (when the market peaked). We are in the camp that there is some near-term downside risk despite strong fundamentals. With that said, we don’t foresee any pullbacks being as severe as they were in March and August, at least for the December contract. The deferred contracts may come with more risk.

Resistance: 189.47-190.075, 191.47-191.62
Pivot: 187.675-188.00
Support: 186.075-186.40, 184.225-184.55

Seasonal Tendencies
Through the first half of October, live cattle have been close to on trend with historically price averages for the same period. Historically we’ve seen continued strength through the back half of the month, but there are some concerns that uncertainty around the election could impact money flow which could lead to some turbulence in commodities such as cattle.

*Past performance is not necessarily indicative of future results.

Volatility Update
The CME CVOL index ticked lower yesterday as volatility remains relatively low, which may make options a good play for those who are looking to protect the downside while keeping the upside open.
 

Economic Data

This morning’s economic data came in better than expected with a beat in retails sales, and Philly Fed. Initial jobless claims were in line with expectations.

Daily Cattle and Beef Summary

Cutout values were firm yesterday with choice cuts 2.30 higher to 319.13 and select .28 higher to 292.37. The 5-area average price for live steers was reported at 187.00, steady with recent reports. Wednesday’s slaughter was reported at 125k head, in line with last week and last year. Week to date slaughter is at 370k, that’s 11k more than last week but 6k less than the same period last year.

Weekly Export Sales

Pushed back to Friday morning due to Monday’s holiday

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Lean Hogs (December)

We’ve been in the Bear camp for lean hogs but yesterday’s sharp reversal back to a new closing high for the move puts that bias at risk. The market closed right at the top end of our resistance pocket from 77.22-77.72. A breakout above this pocket could extend the rally towards 78.70-78.97. Above that is the contract high from April at 79.60.

Resistance: 77.22-77.72, 78.70-78.97*
Pivot: 75.25-76.00
Support: 73.85-74.07, 72.00-72.85*,

Seasonal Tendencies
Lean hogs have historically done well in the first half of October, but the back half tends to be more questionable. We’ve seen this December contract stage a few counter seasonal trends this year, so whether or not this year aligns with history is TBD.

*Past performance is not necessarily indicative of future results.

Volatility Update
With prices at the upper end of the range and volatility at the lower end, those looking to protect price and keep the upside open may consider using options as a tool. To discuss specific strategies around your risk-profile, please reach out to the trade desk.
 

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