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Home / Futures Blog / The Swine Times 5/14-5/18

The Swine Times 5/14-5/18

May 13, 2018 by John Payne

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Happy Monday Hog traders

We had a pretty good 4 day week last week, until the collapse on Friday in June hog values took some wind out of the sale.  In the “how we trade this” section you will be cautioned to be ready for additions to the M-V spread.  We will most likely do this by moving July longs to June and Aug shorts to Oct.  We typically work with 10 k accounts in mind, we do not want to take our margin to equity ratio much higher than it is right now.

One quick note, I will be out of the office taking a little bit of a vacation between Thursday of this week and Wednesday of next week.  I may recommend flattening out of some of these spreads before then. I wish I could work and take a vacation at the same time, but my wife doesn’t appreciate me obsessing over hog carcass value while taking some R/R with my 3 and 1 year old.   I will be in touch with you whom I know are following these trades verbatim.

Current positions in lean hogs:

LONG 1 UNIT OF JUNE HOGS

LONG 3 UNITS OF JULY HOGS

SHORT 2 UNITS OF AUG HOGS

SHORT 2 UNITS OF OCT HOGS

Looking into next week:

  • As you can see from the chart at the bottom, the carcass value week over week has increased.
  • The hams, as we said last week stabilized and we look for them to going higher toward the $60 area by the time we get to June.
  • Loins and butts led the charge higher the first of the week and look to continue modestly higher. We look for both of these cuts to start to back off and retreat in prices within the next 7 to 10 days as the Memorial Day business is wrapped up.
  • Pork belly prices kicked into gear about midweek and are starting their seasonal increase. While we fully expect there to be pull backs in their prices from time to time, the long term trend is for the bellies to go higher and ultimately put in their summer highs with this move.   This is important to remember why we are bull spread right now
  • The Interior Iowa Southern Minnesota weights did finally come down by .4 lbs. at 285.1 vs. 285.5 a week ago. While this is a good sign that the surplus hogs may be finally getting cleaned up. We still need more weeks of this until we are convinced.

Current vs Previous Weekly Hog Weights

How we trade this

  • At this time, we here at Swine Times want to remind our readers that we are trading for a bull spike or move higher in prices in order to catch a ‘seasonal’ price trend as we transition into summer and less hogs.  Our point we are making here, is that this is still a bear market going forward.  Prices can and will go substantially lower as we go through time.
  • With that said our recommendations have not changed from last week.
  • Packer margins are good and this favors bull spreads LHM/LHV and LHN/LHQ both, in our opinion, are still worth doing on corrections. Just be careful and don’t chase there is plenty of time left.
  • While we had a correction in the LHM/LHV spread Friday we still like this spread. We believe that Fridays trade was more of a basis adjustment than anything else.
  • As we stated above we are putting back out our recommendation of the LHM/LHV spreads
  • We recommend doing them at $9.80 to $10.00 to the June contract or better if we get another ‘major’ correction.
  • We do like the LHN/LHQ bull spreads because it buys us time and the prices between the July and August are within reasonable proximity of each other.
  • We will be looking to sell August lean hogs at $81.00 or higher as we get into the summer. This is a trade that is anticipating producers hedging their fall hogs against the August contract. Since there is such a wide spread in prices between the August and the October hogs.
  • For the longer term we will be looking to sell October hogs outright at $68.00 and higher.

Below is how the weekly product market changed for the week ending 5/11/ 18

Weekly Pork Product Market Price Change

CME Lean Hogs Index
Current Pork Cutout vs Las 2 Years

*USDA   National Hog and Pork summary

** Expressed in thousand head

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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.

Filed Under: The Swine Times

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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