December lean hogs traded at a new one-year high of $72.80 early last week but finished the week $2.77 lower at $67.02. The reversal ran into resistance that was anticipated on Oct. 5 in this blog and will likely continue to be a difficult level for prices to trade above without more fundamental help. CME's Lean Hog Index at $78.54 is one argument for higher futures prices, but pork cutouts fell $5.94 last week and negotiated hogs traded at $60.44 Friday, an indication hog supplies seem to be more than adequate for packer demand. Noncommercial traders were net-long 42,064 contracts as of Oct. 20 and will come under pressure to liquidate if December hog prices fall below the recent low of $61.25. The weekly stochastic is close to turning lower, but not yet confirmed.
December live cattle fell $5.05 last week to close at $103.57 Friday, succumbing to bearish pressure and driving cattle producers deeper into the red. Technically, last Friday's close of $108.62 in the December contract was a new one-month low and put prices below the 100-day average for the first time since late June. The sell-off triggered noncommercial selling and the CFTC says net-longs are down to 41,345 as of Oct. 20. USDA also showed negotiated dressed cattle prices roughly $5.00 lower than formula prices early last week, a bearish sign packers are easily finding the cattle they need. Live trade was lower last week, mostly around $106 and keeping a small premium above the December futures price. Technically speaking, December cattle have a June low at $100.70, which should offer support to prices as I suspect noncommercial selling will soon subside.
November feeder cattle closed down $5.37 last week, dropping from $135.02 $129.65, the lowest weekly close in six months with ongoing pressure from available calves and rising corn prices. On Oct. 5, I mentioned support for November feeder cattle around $130, and we can now see last week's low of $129.70 matched the six-month low and defines our line of support moving forward. It is difficult to say how far the current rally in corn is going to go, not knowing China's level of demand. It is possible, however, feeder cattle are nearing support at current levels as the CFTC reported commercials are net-long 6,600 contracts as of Oct. 20.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
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