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.
BUY 1 JUNE HOG
ALSO….Chinese hog packing is a lucrative biz right now. They need more pigs, not less.
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.
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.