Mexico Slaps Tariff on Pig Feet

by Archer Financial Services | Jun 05, 2018

by Dennis Smith
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Cut right to the chase today. Mexico is slapping a 20% tariff on U.S. pig feet and shoulders. These cuts are unpopular in the U.S. but very popular in the Mexican market. Pig feet make up 2% of the carcass. Butts and picnics, the shoulder cuts, make up a combined 21% of the carcass. This is not good news but the market knew that some kind of retaliatory measure was going to be announced. So the surprise factor is minimal and the tariff does not include hams, loins or bellies which make up a combined 66% of the carcass. Again, this is not good news but it’s also not a surprise to the futures market. Mexico is the largest buyer of U.S. hams. Hopefully rising cash and appreciating cutout value will override this news today? Cash is called higher as we’re entering the tight butcher hog supply situation of the entire year in the next few weeks. The dilemma is that packers are scaling back hours which will tend to stifle the rise in cash hog prices. The only thing to change this would be a sharp, very sharp rise in the carcass. Yet we’re seeing tariffs slapped on our product. Not a good situation. Hedging on any type of rally is highly appropriate in my opinion.


There’s not much new information to gleam from volume and open interest or from the volume of trade in LC options from yesterday. Prices set back across the board yesterday with the June contract gaining on the rest of the board. Futures remain discount with cash traded last week from mostly $1.10 to $1.12. June futures at 10475 should see continued support both in flat price and in the spreads. The cutout is topping as production continues to rise. However, in sharp contrast to the pork packer, beef packers are operating at huge profits. This should make a difference and tend to underpin the cash steer market. We’re moving into some bullish positions in the back end while still holding most hedges in the Aug options. We did cover many of our short Aug calls when prices collapsed in early April. Look for a two-sided trade with prices well supported on weakness.

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