by Dennis Smith
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Cutout has struggled this week with hams and bellies turning soft. Loins have been solid. Cash has been soft but margins have declined. Typically when margins erode it’s a bullish sign, an indication that packers are having trouble sourcing enough hogs and competing for numbers, especially in light of expanded capacity, forcing processing margins lower. This week, in the face of eroding margins, futures collapsed. Pretty much the opposite of what I’ve expected. Volume in hogs the last two sessions has been active (64,600) and larger than cattle volume which is rare. Open interest on Wednesday’s sharply lower close was down by less than 500 cars. IMO hogs could come soaring back higher but likely not this week. In a confused state, we’re on the sidelines. Weekly pork export sales and shipments were average. Monthly pork exports were excellent.
Futures weakened yesterday with a lack of urgency noted. Everyone is waiting for some direction from the cash market. Midwestern cattle are trading north of $1.30 in many instances. The beef was higher. Declining open interest indicates that bullish traders are getting out, exhausted and disappointed by the three day pullback against the uptrend. That’s certainly how we feel. Weekly beef exports were “ok” as were shipments. We’re still looking for some good cash news to drive futures higher.
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