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Home / Futures Blog / TWIG Note – Ignore the Macro Risk, the Hog Market Will Be Won or Lost on Friday’s Report

TWIG Note – Ignore the Macro Risk, the Hog Market Will Be Won or Lost on Friday’s Report

September 25, 2014 by John Payne

This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Thursday, September 25, 2014.


I am sitting here watching my screen bleed itself to death and the contrarian in me is looking for something to buy.

Grains? Wouldn’t touch the long side with a 10 foot pole until we get through the month of September.

The ES? Buying dips in the ES has been very easy since 2008, but with QE ending in October and the election creeping up, I’m staying away from all equities for now.

Currencies? Maybe, but I wouldn’t fade the dollar at this point. 85 on the DX was broken and with Europe in the toilet economically and Russia cranking the tourniquet, I would keep my cash in greenbacks.

Crude? Have you seen how much crude we have on hand compared to the last few years? Check out the graphic below. Besides this, were past August and Crude usually isn’t a buy in my eyes until after the new year.

stocks

Metals? Not with China stopping construction of ghost towns and the US entering what could be a tightening phase.

Cotton? No sir, not with China claiming to be getting out of the import biz – LINK

Meats – OK, now were talking. Cattle is certainly something worth looking at on breaks.. The people I talk to tell me there are no cattle around. This is a market I feel comfortable buying on breaks, but we haven’t really had much of a chance. Feeders look attractive as well, but with prices at all time highs, I cant get too excited buying this market either. Cattle on feed usually bottom in September.

That brings us to hogs. Hmmm, bacon. Hogs are down because the cold storage showed ample supplies of pork in freezers and the idea that the herd has been rebuilt since last winter’s PEDV debacle and the vaccine that exists. That certainly isn’t bullish, but keep in mind that product has not seen massive increases in supplies rather its been fatter animals and I have heard the vaccine is hit or miss at best. On Friday, we will find out if that is still the case. During the last quarterly report in June, we saw a drastic drop in the breeding herd because of PEDV. On Friday, we will see if the virus is still restricting supply.

While hog supplies will most likely be higher, I am willing to bet the herd is still not big enough. The cash market has remained very strong, with Oct hogs trading near 107. December hogs were as high as 105 earlier this summer and have corrected and I know the PEDV hasn’t gone the way of Polio, according to my sources. Technically, I love seeing that gap up at 102. I think that gets filled before the contract expires.

hogs

What’s my play? I’m buying December call options before Friday. Pick your poison as far as strike. I like call options because if I’m wrong and the herd has grown more than I expect, we could see a washout with limit moves down, especially if the bottom trend line gets broken. I don’t care to hold futures and pray I’m right. Keep your risk defined. Besides these are Dec Hogs, the options don’t expire until December.

I like buying cheap out of the money calls, like the 102’s for about 1.30. If the report is bullish like it was in June, I think we see 102 within a few days/weeks. At that point you can either take profits on the position or use that call to sell futures against and ride it back lower. The options are limitless, no pun intended. Sound like a plan? If you like it, give me a call and we can talk more about it.

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Risk Disclosure

WHEN INVESTING IN THE PURCHASING OF OPTIONS, YOU MAY LOSE ALL OF THE MONEY YOU INVESTED.

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: This Week In Grain

About John Payne

John Payne is a Senior Futures & Options Broker and Market Strategist with Daniels Trading. He is the publisher of the grain focused newsletter called This Week in Grain, along with being a co-editor of Andy Daniels’s newsletter, Grain Analyst. He has been working as a series 3 registered broker since 2008.

John graduated from the University of Iowa with a degree in economics. After school, John embarked on a 4 year career with the United States Navy. It was during two tours in Iraq and the Persian Gulf where John realized how important commodities are to the survival of society as we know it. It was this understanding that brought about John’s curiosity in commodities. Upon his honorable discharge in 2007, John’s intense interest in the world of commodities inspired him to move to Chicago and pursue his passion in a career in the futures arena.

After a three year position with a managed futures firm specialized in livestock trading, he was given the opportunity to join the team at Daniels Trading. Being in the business and seeing how other IB’s operated, it was the integrity and straightforward approach of the Daniels management team and brokers that attracted him to make the move. Since joining Daniels, John has broadened his fundamental and technical analysis of the markets even further. John has been writing his newsletter This Week in Grain under the Daniels banner since 2011.

Working in high pressure industries like the military and capital markets, John has learned the value of preparation in times of stress. He believes that instilling within his clients the value of a good plan and a cool head for dealing with the day to day swings of commodity markets. He treats every client as a teammate, understanding that his job is to help clients achieve their goals, whatever they may be.

John is a proud supporter of the Iraq and Afghanistan Veterans of America, the Veterans of Foreign Wars and the National Corn Growers Association. When he is not working, he enjoys athletics of all kinds and spending time with his wife and their two kids.

John’s commentary is featured in the following publications:

* All Ag Radio – Sirius Channel 80
* AM 880 KRVN – Lexington, Nebraska
* RFD TV
* Wall Street Journal
* Barron’s
* China News Daily (English version)

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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