Futures are expected to open moderately higher today but, in the February live cattle contracts, we saw a key reversal from the contract highs of 124.950 and I would expect to see a further break down to the 124.000 support level set back in the month of October. The slow stochastic is signaling for a downturn and break-through of the 124.000 support level and a possible sell-off to the 50-day moving average at the 121.525 price range. Fundamentally the cattle market is showing signs of stronger demand with choice cutouts up 0.94 (215.35) and select up 3.16 (210.66) from Monday’s trading day. Cash cattle from Friday were showing a $3-$4 dollar raise after the winter storm that moved through the plains but with the storm being much milder than what was expected, we could see this have a bearish effect on the market. 

As commercial and spec traders position themselves around the early year cash potential, we are seeing the lean hog market in deep oversold territory. Any trade news that comes out of China will have a positive tone on hogs as the African Swine Flu has decimated the pork supply in China, giving the expectation that China will be big buyers of U.S. pork in 2019. The market is past the peak production point of the year but for the remainder of the week we should we production rise slightly due to slaughter numbers being back at full kill. The CME Lean Hog Index was down a penny from the previous day at $53.11 on December 27th. The USDA pork carcass cutout value was down $.27 at $70.19 on good movement of 352 loads. Estimated packer margins were $43.19/head for non-integrators and $14.41/head for integrators vs. $46.27 and $15.49 the previous day.

Live Cattle Feb ’19 Daily Chart

Live Cattle Feb '19 Daily Chart

Peter McGinn

Peter graduated from DePaul University with a degree in Economics. Peter started his career with an IB at the Chicago Board of Trade. He then moved on to TradeStation Securities for a time before starting as a Market Strategist at RJO Futures in 2018.