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Home / Futures Blog / SWINE TIMES 7-3-17

SWINE TIMES 7-3-17

July 3, 2017 by Donna Hughes

We will offer an analysis of the June Hog and Pig crop report that came out this past Thursday and what we believe it means to live hog futures going forward.

First, let’s look at what happened with the live hog and product market this past week.

Here is a summary of Pork Carcass cutout and live hog prices for week ending 6/23.

 

*Product                                  Price on Monday 6/26          Price as of Friday 6/30                  Change

Loin                                          93.64                                                 94.63                                    .99

Butt                                         108.24                                                 109.42                                  1.18

Picnic                                       67.94                                                   67.90                                  (.04)

Rib                                            148.03                                               141.24                                (6.79)

Ham                                           73.88                                               74.85                                     .97

Belly                                         190.31                                               198.17                                  7.86

Carcass Cutout                      $101.35                                                102.92                                 1.57

*National Carcass

Base Price                                 $85.82                                                 85.76                                  (.06)

*National Live Price                   $66.60                                                66.82                               .22

 

**Estimated USDA Hog Slaughter            Week ending 7/1/17                    2192

Actual USDA Hog Slaughter                     Week ending 7/2/16    2185

% change year over year                                                                              100.3

 

As you can see, the carcass value gained $1.57 while the live hog price gained only $.22

Now, let’s look at the same time frame and compare what the first three live hog futures contracts did this past week.

 

Live Hog Contract           Monday’s Close                Friday Close                      Net Change for the week

July Hogs                            87.73                                         90.63                                               2.90

August Hogs                        80.53                                         83.75                                              3.22

October Hogs                      69.28                                         70.45                                              1.17

 

 

Looking into next week:

  • As you can see, the basis cash to futures narrowed as expected.This was what is supposed to happen as the July futures expiration draws close.
  • The July futures gained 2.90 and the cash hogs only increased by .22cwt.
  • Putting the product market values up against last week’s pig crop report, I think it is safe to say the product market is in the process of topping out.
  • As we go through the Fourth of July week and the weeks to follow, the packer will be giving up margin as the sales of the product will slow down and prices will weaken.
  • The live hogs may prove a little more resilient to downward price pressure, given that the hog producer is current and sold ahead. He will be able to decide which days to sell hogs and at what price he will sell. He is not in a ‘I have to sell hogs today’ mode.
  • As mentioned last week, the packer margins are still unusually good for this time of year, and the packers will want to keep their slaughter schedules full because of that. The cutout may not be as good as previous weeks, but it is still in the black. Therefore, they can give up some margin and sell the product lower to keep inventories in check.
  • Bellies may defy this scenario (at least temporarily) until the backlog of orders are filled and the food service demand cools down. We are getting very close, so watch the USDA composite belly market .

 

A word about the June Pig Crop report:

 

Here is the USDA report breakdown by category                            My Analysis

All Hogs                                               103%                                                    Within expectations

 

Kept for Breeding                           102%                                                    Middle of the estimates

Kept for Marketing                      104%                                                This is indicative of how many hogs are coming this fall. (See the weight breakdowns below)

 

Weight Breakdowns:                                                    Estimated Slaughter dates

180 lbs. & over                106%                                    6/3-7/8 ( most of these are dead)

120-179 lbs.                     104%                                    7/9-8/14

50-119 lbs.                         104%                                    8/15-   10/13

Under 50 lbs.                     104%                                  10/14- 12/10

 

As you can see, the weight breakdowns tell the tale. We have had a major expansion of the hog herd and it is now reflected by the weight breakdown of the hogs coming to market in the future. All of this will put downward pressure on the price of live hogs.

The June 29, 2017 pig crop is the largest on record since 1964.

 

How do we trade this?

  • Stay with bull spreads long July and/or August hogs short October and/or December hogs. These front contracts are limited as to how far down they can go, given the proximity and the discount to the cash hog prices.
  • Sell October and December hogs outright on rallies.
  • Watch the weather and temperatures. If you get cooling temperatures, you could see a quick drop in the live price. By the same token, if you get extreme heat for an extended period of time, you can get a slow down in live hog marketings and a quick shift to higher prices, as packers fill out their weekly slaughter schedules.
  • Product values become an even more critical factor in what packers will do regarding their slaughter schedules and what they will be willing to pay for hogs. If forward pork sales are good, the packer will be aggressive on pricing hogs if he needs them. The same holds true if they book some export orders. Be particularly watchful for export orders. The packer will be wanting to book overseas sales in order to get the surplus meat out of the country and buoy domestic prices.

 

*USDA National Hog and Pork summary

** Expressed in thousand head

 

 

 

Hedging Cattle in the Summer 2017: A Paradise of Risk

Hedging Cattle is risky business in Summer 2017 thanks to recent weather events and high cash demand. Senior Broker and Market Analyst John Payne brings his expert knowledge of livestock futures to the public with this informative report.

Register Now

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 TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

Filed Under: The Swine Times

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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 TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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