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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.
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
*USDA National Hog and Pork summary
** Expressed in thousand head
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