by Dennis Smith
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Hogs rallied sharply yesterday as it appeared a couple of large buy orders entered the deck. Evidently the buy paper was unable to source significant selling above the market resulting in a quick jump in prices. This is how/what hogs do when they’re in the process of changing direction. Indeed, a key reversal was scored last week. Volume yesterday, at 58,000, was actually larger than LC volume which is rare. Fundamentally several items appear to be falling into place. First, judging by packer margins taking a hit late last week and continuing to narrow yesterday, it appears that hog numbers are on the verge of tapering off. Second, increases in demand should also be just around the corner. Third, it appears that progress has been made in the NAFTA talks and this trumps (no pun intended) the Chinese tariff on pork by far. The fact is, Chinese pork prices reside at 4-year lows. No one in the trade was expecting any significant Chinese export business this year. So a 25% tariff on U.S. pork won’t really impact total U.S. pork exports much. Look for a higher open and likely a higher close today.
LC and FC rallied yesterday but the rally did not stick and prices pulled back into the close. A mixed settlement was not a bearish settlement in my opinion. We’re still looking for upside potential in these markets likely fueled by the onset of strong seasonal beef demand. The sharp jump in the choice/select spread yesterday is perhaps the first signal that such demand is finally surfacing. Believe it or not, someday it will warm up and the barbeque grills will get fired up. The show list is larger this week, estimated at 288,500 head compared to 268,000 last week. This is not a surprise. The weekly kill is projected to come in at 611,000, or down slightly from last week’s aggressive kill of 615,000. Last week both fats and feeders scored impressive key reversals. The feeders appear to be etching out a possible head and shoulders bottom formation. Keep in mind on the backside of very aggressive placements for the last several months, the supply of feeders outside of the feed yards should be tight. Look for a choppy two-sided affair with a higher close likely.
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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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