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Japan Increases Tariff on U.S. Beef Imports

by Archer Financial Services | Nov 28, 2017
By Dennis Smith 
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LEAN HOGS

What we know for sure is that yesterday’s surge higher in lean hog futures was a light volume rally posted at just 27,335 with open interest slightly lower. We also know from the COT report released yesterday that funds appear to be in liquidation mode not only in lean hogs but in live cattle and in the grains as well. Considering their net long in hogs remains above 50,000 contracts, liquidation mode is a negative development. Last week there were three downward revisions in hog slaughter. Weights, reported last Wednesday, are up four pounds from last year. Packers appears to be keeping the kills down in an effort to maximize their margins. This is a negative long term development. Finally, the seasonal tendencies suggest hogs will top by the end of this week. We are trading accordingly. Look for resistance today just above the market in the most active Feb from 7030 to 7070. Dec hogs are now premium to the CME lean hog index putting the onus on the bullish trader to keep this market moving higher. Cash is expected to trade weak to lower today. 

 

LIVE CATTLE

Live cattle futures rallied smartly yesterday in what was a light volume rally. The volume yesterday was only 46,000 with open interest increasing by 2,700 cars. The show list is slightly smaller this week compared to last week. The trade is clearly expecting and factoring in a higher cash trade this week. Most likely the trade is factoring in a continuation of strength in the wholesale beef complex which is highly questionable. Beef tends to top out at this time of year. The cutout last night was quoted down $1.42 after being quoted mixed at noon. We just learned that Japan has increased the tariff on frozen U.S. beef imports to 50%. This was announced Friday and goes into effect immediately. The reason is because Japanese beef imports have surged this year and the rules are designed to protect their domestic beef producers. This is negative news given that beef production will be record large next year. This week’s kill will be huge. If product can’t hold, a higher cash steer trade may not be as automatic as most expect. There’s a normally reliable seasonal indicating to sell Feb LC now and hold into the middle of December.
 

    
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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).

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