The Swine Times 5/18-5/22

Hello hog traders

Current Positions:

LONG 2 UNITS OF JUNE HOS

SHORT 2 UNITS OF JULY HOGS

Looking into next week:

• The hog story remains influenced by a high cash pork price against a slaughter that remains sluggish due to lower capacity. The following two factors along with a cold storage report will affect the trade.
• Increasing slaughter. We are projecting next week’s weekly federally inspected slaughter to be approximately 2,200,000 head, only slightly lower than a year ago. Slaughter has picked up more than we estimated.
• We believe that the price of retail pork cuts (loins and butts) next week will initially not be negatively affected that much. As we get further into the week, these cuts’ prices, along with the belly price, will start losing money.  It is our opinion that the further we get into next week, the potential exists for a steeper decline in pork cut prices. When it becomes obvious that the slaughter numbers could increase even more the week following Memorial Day week, prices on fresh pork cuts (loins, butts, ribs, and bellies) could then go even lower.
• Cold storage will be released on Thursday afternoon. Cold storage stocks were very high before this whole ordeal started.  They have been leaned on heavily to replace fresh meat in stores. A lower number is obviously expected; it will be interesting to see how much lower it comes in.
• As the scenario above plays out, it is important to keep in mind that the live hog weights are heavier than a year ago. The weights from the week prior came in at 295.1 lbs. versus 291.4 a week ago and 286.1 lbs. a year ago. This dramatic week over week increase in weight will put a lot of extra pork tonnage on the market.  This, too, can eventually lead to a decrease in pork prices as the meat finds a price level at which it can clear the retail channels.

How We Trade This:

• We like adding to the LHM/LHN spreads under a -$1.00 to the LHN with an exit strategy at plus $2.00 to the LHM.

  

• We also want to be net sellers of LHQ, LHV on sharp rallies. We recommend selling LHQ above $60.00 and LHV above $55.00.

  

• Once again with the above strategy in place, we would then look to buy the LHG hogs on a sharp break to hedge off part of our risk on the outright short LHQ and or LHV positions. Plans like this are unlikely to come to perfect fruition but ideally we are set up long June, short Aug and Oct and then long Feb when its all said and done.

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