by Dennis Smith
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Cash was higher on Monday and expected to remain fully steady to firm again today. Heat should continue to take a toll on average hog weights. The reduced kill ideally should support the product. That’s not really happening thus you’re seeing margins begin to get squeezed again. Nevertheless, look for support in the July contract as the cash stabilizes and possibly even heads higher in the near term. The Oct and Dec stumbled hard yesterday on continued fallout from the negative hog & pig report. In addition to confirmed expansion is the continue threat of expanding trade war issues. Spreading drove up the back end making these contracts attractive sells on some upside follow through. Hogs displayed a higher volume trade on Monday at 85,130 with open interest increasing by nearly 1,900 cars.
Live cattle futures also displayed large volume trade on Monday at nearly 84,000 with open interest edging higher by 795 cars. The show list is slightly larger than last week. The kill is disrupted due to the holiday marking the third consecutive week of a down tick in the slaughter. Slower marketings is not a bullish item and it will show up in increased cattle weights. The board and cheap corn are both encouraging the “full feeding” of animals. Despite the disruption in the harvest of beef the cutout does not bounce. This is because demand has peaked. While exports are thought to remain robust to even excellent, this is being threatened with the looming trade war. Until Sunday beef had not really be dragged into the trade disputes. That’s all changed with Canada slapping a 10% tariff on U.S. beef effective immediately and they’ll remain in place until the U.S. tariff on steel is dropped. Canada is our 5th larger beef import customer…very important. The seasonal high is due now. We are trading accordingly.
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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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The risk of loss in trading futures and options on futures can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them. Past performance is not necessarily indicative of future results.