by Dennis Smith
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The U.S. hog market, with cash prices hovering just above 16-year lows, is facing a historic and very bullish dramatic change in fundamentals. Four new cases of ASF were reported in China since yesterday. One case was in Anhui province and this was the largest pig farm thus far impacted. Anhui province now has 4 out of the 13 cases reported. This province, about the same size in square miles as IA, holds 15 million pigs. IA, by far holds the largest pig population in the U.S. at over 21 million. Putting this into perspective, this disease is spreading rapidly in an area about the size of IA with 15 million pigs. China is a pork importing country. Every pig culled represents a carcass that will be imported from the EU or U.S. The option market makers already know what is likely to happen. Try buying a few June hog calls that are $30 out of the money. You can’t get the order filled. If June hogs gap higher today the rocket has cleared the platform and headed for the atmosphere.
LC and FC futures continue to display the range mentality. The upper end was just tested, and failed. Support stands from 11200-11250 in the Dec. I’m losing track of how many times we’ve traded this range, bought the weakness and sold the strength. A seasonal low is not due until the end of the month. If it comes early it’s because of the explosive hog market and not so much because of the cattle market. Short term weakness in the beef cutout values should drag futures lower.
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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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