Written Commentary
CATTLE
Technically, the market seems to have rejected the idea of trading below $125 for the December contract. Weight data suggest producers are current with marketings, and export demand has been better than expected in recent weeks led by China and other key Asia buyers. China trade issues with Australia has shifted some China demand away from Australia and toward the US. It will take more positive news in the beef market or the cash cattle market in order to confirm that a short-term low is in place. The market is technically oversold and showing divergence in some key indicators. December cattle opened slightly higher on the session yesterday and closed sharply higher on the day. The buying pushed the market up to the highest level since September 27th. Ideas that the beef market is close to a near term low, plus weight data which continues to suggest that producers are current with marketings, are seen as positive short-term forces.
Beef prices have dropped sharply over the last several weeks while cash markets have inched lower, so it will not take much in the way of positive news for the beef market to stabilize, or even support the cash market. The USDA boxed beef cutout was down $2.51 at mid-session yesterday and closed $3.18 lower at $289.18. This was down from $302.70 the previous week and was the lowest the cutout had been since August 3. The USDA estimated cattle slaughter came in at 120,000 head yesterday. This was up from 119,000 last week and 116,000 a year ago. Cash live cattle trade was quiet on Monday, with no trades reported. The 5-area weighted average live steer price last week was 122.56, down from 123.64 the previous week but up from 107.12 a year ago.
LEAN HOGS
The market seems to have priced-in much of the sharp reduction in supply versus trade expectations for the September USDA hogs and pigs report. Short-term, the market looks too overbought and if pork values turned down, cash markets could drift lower as slaughter supply increases seasonally in the next six weeks. The USDA pork cutout, released after the close yesterday, came in at $110.54, down 67 cents from Friday but up from $110.37 the previous week. December hogs closed sharply lower on the session yesterday as the lower opening attracted increased selling pressure and traders turned more aggressive sellers on the move under Thursday’s low.
The market is overbought technically, and also in a time frame when supply seasonally increases. With the sharp break in pig prices in China, traders are hesitant to believe that China will continue to be an active buyer of US pork. The CME Lean Hog Index as of September 30 was 93.39 up from 92.90 the previous session and 91.47 a week prior. The USDA estimated hog slaughter came in at 481,000 head yesterday. This was up from 478,000 last week but down from 484,000 a year ago.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
