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Home / Futures Blog / SWINE TIMES 8-21-17

SWINE TIMES 8-21-17

August 21, 2017 by Donna Hughes

The product market has turned, and the live hog prices are following them.

 

Below is how the weekly product market changed for the week ending 8/18/ 17

 

*Product                              Price Monday   8/14           Price Friday 8/18                           Net   Change

 Loins 82.71 81.80 (.91)
 Butts 92.05 93.12 1.07
 Picnic 58.98 54.54 (4.44)
 Rib 128.35 135.71 7.36
 Ham 65.98 67.92 1.94
 Belly 196.73 170.43 (26.30)
 Carcass Cutout 97.56 90.14 (7.42)
 * National Carcass Base Price 77.43 73.34 (4.09)
 * National Live Price 60.75 60.02 (.73)

 

**Estimated USDA Hog Slaughter            Week ending 8/19/17                         2,332,000

Actual USDA Hog Slaughter                        Same Period Last year                   2,295,000

% change year over year                                                                                        +1.6%

 

 

Live Hog Contract   Monday 8/7             Friday 8/11                       WTD Net change

August hogs                    *84.45                            –                                            –

October Hogs                    69.18                    66.13                                  -3.05

December Hogs               63.50                    61.33                                   -2.17

February Hogs                 67.68                    66.00                                   -1.68

* Settlement price

 

Looking into next week:.

  • Swine Times projected last week that the product market would not hold up at the prices quoted on last Friday’s 8/11’s USDA afternoon pork report. That has indeed been the case as the pork carcass cutout lost $7.42 cwt.   Unfortunately, the down is not over yet.
  • The pork bellies, as we have stated before, have been the lynch pin that have been holding the packers cutouts together. The packer has benefited from unusually high seasonal cutouts.   This is coming to an end, as the composite price on the pork bellies was down $13.59 cwt. on Wednesday’s 8/16 USDA close. We closed out the week at $170.43 for a total loss of $26.30 cwt. for the week. Swine Times believes that this downward spiral is just getting started. Where this stops is anyone’s guess. Our best estimate here at Swine Times is that these bellies will need to reach a price level where processors will want to freeze bellies for later. One possible scenario is the price of bellies goes so low, the packer decides to freeze his surplus and own them himself. We think this level could be around $1.25 to $1.30 cwt. This is a risk management strategy, and packers will do this if margins stay reasonably positive and they want to keep weekly slaughters at capacity. This may prove hard to do with the carcass cutout losing $7.42 cwt. for the week. We will be watching this closely.
  • The retail cuts have held up reasonably well this past week. This, too, will end, but probably not until after Labor Day. As we get closer to Labor Day, the weekly kills will be approaching 2.4 million head and after Labor Day, 2.5 million head is what the industry will be facing.

 

How do we trade this?

  • The longs and the funds in the market are looking to exit their positions in all of the hog contracts, particularly the October. October hogs open interest lost over 4000 contracts from Thursday 8/17 to Friday 8/18. If the October hogs try to rally from here prior to Labor Day, Swine Times recommends selling them.
  • If that makes you uncomfortable, you can buy February hogs against them and be spread, long February, short October hogs at even money.   This spread could have the October hogs go 200 under the February.
  • If you are long December short October hogs, Swine Times recommends moving your December hogs back to the February contract and be Feb./Oct. spread. This will open up your position to take advantage of the pressure from the funds and longs exiting their October hogs. This will potentially increase your profits on the October short leg of the spread, because they will lose more in this move than the February hogs will.  A word of caution here: be careful with this, because this spread will also increase your degree of risk if and when the October hogs have a short covering rally. Having too many of these spreads could be painful. Know your risk tolerance.
  • Once again Swine Times wants to be short October hogs before Labor Day and maybe long or spread against the December hogs after Labor Day.
  • Long term here at Swine Times, we are looking at being long LHV, short LHZ, and long LHG at some point in the future. These butterfly spreads work fairly well in volatile markets.

 

 

 

*USDA National Hog and Pork summary

** Expressed in thousand head

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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.

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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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