by Dennis Smith
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Pork packer margins staged a nice improvement yesterday with cash mostly .50 lower and cutout values up $1.29. Several pork cuts appear to be attracting demand and why not prices are cheap, incredibly cheap. Hams are trading at 10-year lows, pork tenderloin cuts are trading at more than 30-year lows and bone-in loins are trading $20 under pork butts. In addition, we’re hearing that export business in hams was huge last week. Finally, in the product, butts are trading at a premium for out-front delivery. Futures set back hard yesterday on volume of 50,000 with longs moving out of the Dec and Feb. Open interest was down 2,200 on the lower board. Consider the up-trend still intact and we’ve just likely completed a three out of four day correction against the uptrend. I’m hearing that cash may be steady to firm today. My guess is that Dec futures go off the board strong. Supplies may have peaked as this week’s kill is only projected at 2.580 and not above 2.6 million.
Major cattle country dodged a bullet with the first winter storm but the 6 to 10 day outlook indicates that could change next week. Above normal precip is in the forecast for all of cattle country next week. For this week, the show list is smaller with fewer cattle ready to go in the north. This is very positive in that northern areas typically have been holding excessive supplies this fall. The show list is estimated to be 250,500 compared to 260,100 last week. The kill will be large this week but then taper off for the rest of the year. The negotiated volume of trade last week was one of the largest for the year at 143,000. Packer margins are profitable, look for a fully steady to possibly higher cash steer market later this week. This expectation should allow futures to grind higher. Finally, funds appear to be coming back into the long side of LC, building and adding to their net long position. In sharp contrast, the funds are short feeders and if they decide to reverse this position, feeder prices will jump. Look for a challenge of resistance levels today in both fats and feeders.
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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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