Hello hog traders
Hog futures traded wildly with toppy type action in the Dec at the end of the week. Oct futures are doing their own thing now, holding somewhat while the deferreds were under pressure from its sharp premium to the cash market. Meanwhile summer contracts traded higher as the spec money keeps premium in the back months. June futures held above $90 during the week, only a few dollars below the summer highs from the last two seasons.
We will get an outlook at supply on Friday, as the quarterly pig numbers are out at the end of the week. The story this week did not change from a fundamental point of view. US hog inventories and slaughter rates are record large, pressuring front month prices. Meanwhile the ASF story out of Asia gets worse last week with it now spreading to South Korea, this has the back of the curve riding a nice bid. China is an anticipated buyer, when we get news to the contrary like we got on Friday, the board will sell off. When this happens, the selling eye of the market turns to December futures. We think that continues this week, making a new low ahead of the report. We will look to take profit there. We will continue to sell Z on rallies.
SHORT 2 UNITS OF DEC HOGS
LONG 2 UNITS OF FEB HOGS
Dec vs Feb Hogs- Daily
Looking into next week:
- Quarterly hogs and pigs is on Friday. There are not many S/D reports for hogs, the quarterly numbers tend to move the market. We think the potential for surprises is somewhat higher given the idea that global demand could be pulling on numbers more than is showing up in pork exports ie, carcass exports. A bullish number could set the tone for a needed rebound in the Dec, but we would be sellers on such a rally. Dec futures remain 15-18 dollars above last year’s low with cash looking like it will head into the mid 50’s.
- We are cautiously optimistic the belly market. We believe that the bellies temporarily have found a bottom, and should trade between $.90 and a $100 for the next few weeks. This should buoy Oct futures to a certain degree.
- The hams have also found good interest at the $55 to $60 area. The market seems to be cleaned up for the next week but we are wary of the following week.
- Loins and butts are also in a trading range plus or minus $5-$10 for the next couple of weeks.
- While we have to admit the news is better than we had anticipated a week ago, we need to keep in mind why this is so. It is our opinion that the export of hog carcasses to China has taken a lot of product off of the US domestic market. As a result, this has put the brakes on the downward slide of the pork product, at least in the shorter term.
- The good news is this is really helping the pork cutout, the bad news is that it’s anybody’s guess how long Chinese pork purveyors will be in buy mode. Remember pork going to China must be ractopamine free, this includes the carcasses being shipped. If these shipments get cut back or stopped the product market will have to have another adjustment down to get the packers to clear the meat. We need to be watching the export news carefully.
- The USDA Interior Iowa Southern Minnesota live weight came in at 281.3 down .2lbs from a week ago but still 2.9 lbs. over a year ago. this is seasonal. It appears from this data that the producers still have plenty of hogs out in the country.
How we trade this:
- In the short run the hog futures are still bearish because of the 2,600,000 plus weekly slaughters in front of us and two, the price premiums already built into the futures prices. Any negative news, like we had Friday, and the live hog futures drop sharply- especially if Dec is near 70.
- The live hog prices fell this past. Much of it was done on Friday. The news that the meeting with Chinese trade negotiators had broken up earlier than planned, and the Chinese cancelled their visit to some US farms, caused a major correction in the hog futures late in the session.
- October hogs closed Friday at 60.35. We believe if we get a 200-300-point rally in October hogs, they are still a sale. Be patient though, we think cash could show some support and the risk to reward is just not there.
- We do think you can sell the December hogs at $68.00 or better. We are still of the opinion that the December hogs will ultimately come to the same end as the October. You are crazy to think it won’t be wild ride though. The belief price should be higher is rising by the week. You can see that in the summer hog prices. Buying could pay huge dividends down the road, but we think in the near term being short/ bear spread will pay the bills.
- Be ready to re-position ahead of the report. If G-J would approach 9, look to take profits.
Subscribe to The Swine Times
The Swine Times - The Swine Times newsletter is designed to help participants in the pork complex understand and trade the futures markets. Our intention is to fundamentally inform and trade based off the information we have.
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.