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Home / Futures Blog / The Swine Times 11/11-11/15

The Swine Times 11/11-11/15

November 11, 2019 by Alec Torrey

Hello Hog Traders

Hog futures were largely range bound last week, although December futures struggled to hold levels against Feb and beyond.  Cash prices continue to weaken amidst the weight of massive slaughters.  The high rate of production is something that will persist well into the new year, get used to it. Domestic demand is decent, but not good enough to survive without additional Asian imports. Feb futures appear to have good support in the high 70’s, we will continue to stay bull spread Feb-April.

Look for us to sell Dec hogs on rallies and buy the Feb-April on Breaks. We missed our Z attempt to short Z midweek by a few pennies, that’s frustrating but we would have lifted it by the weekend. You can expect us to take off flat price exposure into weekends given potential headline risk.

If we would see a big surge in G-J, we will probably look at selling J-M (April-June/July) to butterfly against it.  We think cash is headed into the mid-high 50’s which should pull the Dec into the low 60’s maybe even high 50’s.

ASF remains a theme in China/SE Asia.  The Chinese have mentioned pork production will move back into normal territory by mid-2020, but we are skeptical.  This summer hogs will likely be on fire in 2020, but that is a story for another day. Right now there is plenty of supply given recent demand.

CURRENT POSITION

LONG 1 UNIT OF FEB HOGS

SHORT 1 UNIT OF APRIL HOGS

Looking into next week:

 

  • The cash market did inch under $60. We hear packers already have their slaughter needs covered for next week. The December futures closed at 64.12, it refused to break the mid 63’s. As you can see in the chart above, there has been support there. This is a little over a $4.00 premium to cash though, and the cash hog prices next week are projected to go lower.
  • We missed the belly market last week. China continues to be the thorn in the short seller’s side.  We will continue to chase it though. A while back, we mentioned China would be exporting whole carcasses.  It is now being reported that this is occurring. The number of carcasses may be in excess of 100K head. This has without doubt put a floor in the product values, at least for now.  We are calling the belly market up $7-$10 next week.
  • Last week we mentioned the ham market was in good shape price wise. As you can see by Fridays ham price above the demand has not slowed down. Going home tonight the hams are still sought after for holiday as well as export business. We could see the ham price go up another $3-$5 next week.
  • Loin, butts and ribs are in a trading range. We look for this to continue, we do not see any major move in those next week, but given the China affect, anything can happen. The cutout is strong and that is why prices haven’t fallen like a year ago.
  • The USDA Interior Iowa Southern Minnesota live weight came in at 286.7 up .3 lbs. from last week’s weights at 286.4 and are now 3.2 lbs. over year ago.  This is a little more seasonal than the change two weeks ago.

 

How we trade this:

 

  • We missed selling 65.75 last week, we will likely lower that price this week.  Eventually, we think it is very likely Dec trades below 62 as cash is headed toward 56 in our opinion.  The chart above shows basis will close on cash very soon, weaker cash means weaker futures in our opinion.
  • We still like the LHG/LHJ spread and look to put these spreads on, on corrections of $7.00 or more. We will use these as a shield as we try to short Z in the coming days/weeks.
  • We think that the butterfly spread of long LHG short LHJ and long LHM is definitely worth considering. This is a good spread that should perform slowly.
  • The test for the December hogs will be the Thanksgiving/Christmas Holidays. We say this because this year Thanksgiving is unusually late. This leaves fewer weeks between it and the Christmas Holiday. The reason we point this out is because, when this happens retailers and processor have less time to take advantage of the weekly features.  This can cause prices to be pushed lower in an effort to keep fresh meat stocks in rotation.
  • Ultimately this along with a lot more hogs coming to market will keep the live hog prices under pressure as well.  What would prices of the product and the hogs be, if we didn’t have the sales to China that we do? The market is asking the producer to grow the herd a lot in the coming months, they will oblige.  What if China is not there to buy?
  • There is no end in sight of the unusually large numbers of hogs. We are still in a bear market, and will probably stay in one until at least the first quarter of 2020. The China trade deal and ASF makes us lose sleep at night, but being long that story is not the way to get paid in the near term.  That’s how we see it.

 

 

*USDA   National Hog and Pork summary

** Expressed in thousand head

The Swine Times

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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.

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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

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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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