Livestock Roundup (5.21.18)
May 21, 2018
LEM8: 2.75 at 105.25, trading in a range of 2.00
LEQ8: 2.60 at 100.825, trading in a range of 2.075
GFQ8: 3.275 at 140.90, trading in a range of 2.40
GFU8: 3.00 at 140.80, trading in a range of 2.375
Cattle Commentary: The ag industry got some good news over the weekend with regards to trade. Treasury Secretary Steven Mnuchin said that the trade war is “on hold”. There were also reports that suggested China would increase US agricultural imports by 30-40%. As of right now this is a lot of hype with few details. Friday we will get a new Cattle on Feed report which will be released during normal trading hours. Early estimates are for on feed to be 104.9%, placements at 90.9%, and marketing’s at 105.9%. Perhaps we start to see some position squaring ahead of the report. We know managed money has been stout sellers recently and Friday’s Commitment of Traders report confirmed that yet again. Friday’s CoT report showed that managed money sold 6,346 futures, this puts their net long at a messily 7,092 futures. Cash trade last week fell off rather sharply, but futures managed to hold well relatively speaking. With today’s move higher, the basis has been nearly halved. This weeks Fed Cattle Exchange is back to a small list, just 225 offered for Wednesday.
PM Boxed Beef / Choice / Select
Current Cutout Values: / 230.82 / 207.52
Change from prior day: / (1.39) / (.94)
Choice/Select spread: / 23.30
Live Cattle (June)
June live cattle got some help from headlines to start the week, but was it enough to change the course of the technicals? Time will tell, but we think the technical barriers may be more than the bulls can handle. 105.60-106.05 will be a significant pocket on a closing basis. If the bulls can achieve a conviction close above this pocket, perhaps we see an extension towards that 108.10-109.025 level. A failure to get that leg higher will invite the sellers back into the market. On the support side of things, 102.55-102.60 is a turning point. A close back below this pocket likely opens the door for a run at contract lows. This pocket represents the gap from this morning and the 50% retracement from the recent lows to highs (April 4th- May 10th).
Resistance: 105.60-106.05**, 108.10-109.025****
Support: 102.55-102.60***, 101.20-101.65**, 96.35-97.075****
Feeder Cattle (August)
August feeder cattle managed to close above the pivotal 140.00 level which should bode well for tomorrow’s open. There is some minor resistance points from 141.15-141.675, this would be a spot for longs to reduce. 143.00-143.45 is the pocket where we would recommend selling for a net short position. This pocket represents a key retracement, the 50-day moving average, and an area that had previously acted as support. If the bulls can achieve consecutive closes above here, perhaps we start to see a trend change. As it stands the path of least resistance remains lower, lower highs and lower lows have kept the bears in control. On the support side of things, 139.95-140.375 is the first pocket. A break and close below opens the door to contract lows.
Resistance: 141.15-141.675**, 143.00-143.45****, 145.50-145.80***
Support: 139.95-140.375**, 137.00-137.80**, 134.975-135.00****
Lean Hog Commentary and Technicals (June)
Despite the positive news regarding trade, lean hog futures could not hold a bid. June futures finished the session down 1.20 at 73.50, this after trading in a range of 2.375. The fact that hogs couldn’t hold a rally on friendly news certainly raises some question marks about near term price action. The break and close below 74 keeps the bears in control. Lower highs were marked last week, and we have lower lows this week already, we would not be surprised to see follow through pressure come into the market and potentially take us back towards the April 4th lows of 70.25.
Resistance: 74.00-74.325***, 75.85-76.30**
Support: 72.20-72.75**, 70.25-70.90****
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