Happy Friday hog traders
President Trump’s tariff announcement yesterday was met by retaliation from the Chinese by way of 25% tax on US hog imports, among other goods. The total tariff amount was rather small, only 3 billion dollars worth of US products, vs the 50 billion we are throwing up, but the markets will take it as a longer term shot at demand and we expect heavy selling on the open across the US commodity space.
China is the second largest market for US pork. In 2017 the US exported 2.45 MMT of pork around the globe. Of that 2.45 MMT, 500 k went to China only behind Mexico who bought around 800 KMT. I think some of the lost Chinese business can be absorbed, but not all of it. Supply is too high relative to demand and we will see the market adjust, but it will take time and lower prices to shut down production. The industry is no doubt shaking this morning, especially given what could happen if NAFTA falls apart as well (see Mexico).
China is the world’s largest consumer of pork. They import from the US and the EU. They are also the world’s largest producer of pork. The winners from this news will be the EU, who will most likely pick up more business, but it is also soybean producers as China will most likely have to step up hog production to make up for this supply and that will take protein. Even as grain and soy prices are lower this morning, this has to have them feeling pretty good.
I expect prices to open limit down, probably across the curve. I think in the longer run, we have priced in much of this news, given the recent sell off of 15 dollars from high to low, but the back of the curve remains heavily elevated relative to the front and we could our bull spreads work as prices fall. Stay tuned for position adjustments today. I wish we would have not covered our April shorts yesterday, but this is a process oriented program and covering risk ahead of uncertain events will save us some day as well.
Current positions are:
Long 2 June hogs
Short 2 Oct Hogs
We will check in later today.
Livestock Futures and Options to Hedging
If you are interested in the livestock commodity futures industry but feel you could use more information to get started, then download this self-study guide to learn the fundamentals of futures trading and hedging. You will receive an incredibly detailed, step-by-step explanation of the life of a livestock futures contract, as well as what tools you will need to possibly realize your goals.
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.