Cash was strong yesterday, quoted up $1.50 to $2.00. Feb and Apr hogs are hovering near the highs reached in early and again in late November and again in late December. The summer and fall/winter contracts are posting fresh contract highs. My guess/bet is that the front end of hogs will pull back into a seasonal low before attempting to take out the massive resistance above the market. The obvious driver would be huge demand for U.S. pork from both the domestic user and the export customer. Fundamentally, I worry about record large production, consistent downward revisions in slaughter and heavy weights hogs. It appears, however, that the power of demand will override all of these supply side worries. The market seems totally complacent in regards to NAFTA concerns. Once again, yesterday, lean hog put volume of trade was twice that of calls. Perhaps all NAFTA worries are being placed into the options market. A massive snow storm is battering the eastern seaboard. Schools in NY and Boston are closed today and likely will be closed tomorrow. I’m guessing this will hurt consumption of meat. We’re buying puts on a higher trade today and selling futures. Given weakness into the middle part of January, we’ll turn bullish.
There’s still no cash trade nor any bids to report. Feedlots are fully confident they will get their asking prices ($1.26) for show list cattle this week. The huge storm along the east coast could/should disrupt normal meat consumption. Will it show up in the beef cutout value is hard to say. Currently the beef is soaring off good seasonal demand and restocking business after the holidays. We are totally unhedged in the Feb, partially hedged in the April timeframe and building substantial hedges in the June and now the Aug timeframe. Yesterday was a spread day with over 10,000 Feb/Apr trading and open interest down in Feb by 2,800 with open interest up in Apr almost the exact amount. The Goldman Roll and index fund rebalancing starts on Monday. Index funds are expected to lighten their weight in livestock for this year making them a net seller of several thousand contracts. We don’t really have any outlook for today. Just see what happens and attempt to react appropriately.
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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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