Hello hog traders
We heard late last week phase 1 of a new trade deal with China was completed on Friday. Price action should be positive in longer dated contracts. Let us first say that if you wish to buy this market for a longer run perspective, look at the summer contract months. You can probably feel pretty good camping out in that contract for a while, given the premiums to cash tend to stick around for a while. We expect hog markets to open higher this morning.
We think it unlikely details about what Chinese buyers will purchase ever come out, if you want to be long this market for a move to the triple digits you need to have some faith and just get in. We think it very important you choose the right month though. High US supplies are and will be around for a while. We expect slaughter to be above 2.8 million this week on near record weights, needless to say supplies available are massive in the short term.
It will be interesting to see if the dynamic changes for hogs in the coming weeks.It comes down to record large US hog supplies vs new Chinese demand. If the latter overtakes the former, we expect a price rally into the summer for cash markets. At this point optimism is high. Unless news headlines would reverse, next week should see bullish action in those summer contracts. We are not as positive about the G or J contracts though. Hogs are heavy and the kill is going to be high, production could exceed 600 million pounds for the week. This will limit the cutout. G futures can rally but they will be limited by the cash/cutout spread. Remember, the packer is in business to make money not feed China.
No current positions
Look for us to get long a unit of summer hogs early this week. Spec longs are basically flat, it makes sense to get in but we have to show some patience with the trade.
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