The Swine Times 2/27

Hello hog traders

We are seeing a bounce in crude this morning, we think this is a good spot to cover and buy June. At some point we will get net long but for today we will just cover our net short.

RECOMMENDATION

BUY 1 JUNE HOG

ALSO….Chinese hog packing is a lucrative biz right now.  They need more pigs, not less.

CURRENT POSITIONS

LONG 2 UNIT OF JUNE HOGS

SHORT 1 UNITS OF AUGUST HOGS

SHORT 1 UNIT OF OCTOBER HOGS

 

LOOKING INTO NEXT WEEK:

• The product market seems to be stabilizing, consolidating at the levels in which they closed Friday.
• Sources tell us that the loins and butts are in good shape going out for the next week to ten days. Both cuts could work higher as next week’s slaughter is going to be about 100,000 head less than this week. This should support the front end.
• It is our opinion that the bellies are in a trading range of between $65 and $75 cwt. If the bellies can move higher next week, this could be indicative of processors booking features with retail and food service accounts.
• Hams have bottomed and will continue to work higher as we approach the Easter holiday.
• The USDA Interior Iowa Southern Minnesota Hog weights went down .2 lbs, coming in at 285.3 versus 285.5 a week ago and 286.2 a year ago. This is the first time we can write this in a while. We would like to have seen a larger drop, but bulls will take what we can get and continue to monitor them for any change in direction.  We believes that the producer has his marketings current, but time will tell.
• We are continuing to hear mixed reports on the ports overseas, particularly China, as they are backed up and have to redirect shipments to other ports like Hong Kong and other countries. We did hear from a reliable source on Thursday that the Chinese government is giving priority to off loading medical supplies and drugs first, with some pork product shipments second.

HOW WE TRADE THIS:

• The weekly hog numbers are seasonally starting to go down as evidenced by the USDA Interior Iowa Southern Minnesota weights as well as the weekly federally inspected slaughter. This should facilitate narrowing the basis between the cash hog index and the April futures.
• For the reason stated above, we like the LHJ/LHV spreads under 3.75
• We also like doing LHM/LHV spreads under 11.00.
• We are bull spreading a bear market for the following reason. It is our opinion this is strategy with the least risk to start building a short position in the deferred hogs and take advantage of their unusually large premium to the cash.  As the product goes higher and the packer margins improve, packers will not hesitate in raising live hog bids in order to get their weekly slaughter needs covered. For this reason, we believe over time, the front months of April and June hogs can be a value. We say this because their prices are closer to the cash index price.  We recommend doing these spreads LHJ/LHV and LHM/LHV on corrections.  As the year progresses, and if the fundamentals support this, we would be selling LHQ and LHV hogs outright as we approach the fall.  We understand that this is a long way off, and a lot can happen in between now and then.  We just want to share our analysis of a long term trading strategy that we have at this point in time..
• Our final reason for doing bull spreads is as follows. If ASF ever gets detected in this country and you are back spread (long LHV or LHQ against short  LHJ ‘s or LHM’s),  you will not be able to get out of the deferred hog longs.  It is our opinion they could be limit down for days.
• Once again, we are recommending patience with the market. Try to be as present as possible, the fear trade is doing a lot of business right now.  This doubles as opportunity. Remember, the world will only end once.

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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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