Massive Swing Higher in Cash hogs, Swing Lower in Cutout

by Archer Financial Services | Aug 03, 2017
By Dennis Smith  To learn more about Dennis, click here

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There was a large swing in the pork cutout from noon yesterday to the closing quotes. At noon hams, picnics and ribs were quoted slightly higher with bellies steady. On the close, however, all of these cuts including bellies were slightly lower. So the cutout went from up $1.50 to down $1.96. This should bring some early selling to the board and it may be short lived and a mistake. The cash is the driver and cash came in higher late yesterday, not sharply lower as predicted in the early report. So you had a massive swing upward in the cash, going from talk of $2.00 lower to .50 higher. My guess is that Aug hogs will have a session low in place within the first ten minutes of trade. Look for support in the most active Oct on a pullback below 6600. Open interest declined on the rally yesterday, confirming large short covering which likely will continue in force today.



Cash traded at $1.16 early yesterday but firmed up to $117 in the direct trade and there’s talk of $1.18 paid. There’s also talk that packers are not done yet and may have to pay even higher money? Futures rallied on short covering yesterday. We’re bearish, holding puts that came to within a whisker of being liquidated at our target price before futures turned higher yesterday. Anyone that thinks this is easy has never tried it. We’re strongly recommending to hedge or add to hedges basis the Oct and Dec today. Production in the fourth quarter is going to be a monster and in my opinion will drive prices lower to sharply lower. Beef has been lower every day this week. 

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The risk of loss in trading futures and options on futures can be substantial. The author does not guarantee the accuracy of the above information, although it is believed that the sources are reliable and the information accurate. The author assumes no liability or responsibility for direct or indirect, special, consequential or incidental damages or for any other damages relating or arising out of any action taken as a result of any information or advice contained in this commentary. The author disclaims any express or implied liability or responsibility for any action taken, which is solely at the liability and responsibility of the user. In addition, the author of this piece currently trades for his own account and may have financial interest in the following derivative products: (corn, soybeans, soybean meal, soybean oil, lean hogs, live cattle, feeder cattle).