by Dennis Smith
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Traders are now adding to and aggressively getting short in the hog market. On the third day of acceleration down open interest jumped by over 3,000 cars on large volume reported at 95,000. All levels of support have been taken out. Packers have been successful at slowing the kill and creating a backlog of hogs, allowing them to break the cash. This bearish development occurred due to slowing export business which is just the opposite of what most were expecting, including me. It’s totally frustrating to report that disease continues to spread in Asia, forcing the cull of millions of pigs but to no avail to the lousy and backlogged U.S. market. Reports today confirm that Vietnam has now lost 10% of its herd, or close to 3 million pigs. ASF has now been confirmed in large hog farms after wiping out small producers since early March. So the losses presumably will accelerate. ASF continues to spread in China. Again, no matter as the U.S. lean hog futures market is solely focused on the short term which involves a backlog of hogs. Seeing hogs backed up going into the summer is extremely rare. The quarterly hog & pig comes out Thursday. I’ve not seen any estimates yet. No recommendations.
Our recommendations in LC are very specific, begin covering hedges in the Aug futures and options on any trade below 10200. We’ve been hedged in the Aug and Oct LC since last fall, added to them during the first half of May. We are bullish corn, expecting this year’s crop to come in south of 13.0 billion bushels. This should force feeders lower as the demand for feeders takes a dive. Eventually the demand for heavy weight feeders will then increase while all other feeders will remain on grass. Placements will decline, LC futures will stabilize and eventually bottom. So I’m expecting an early summer low in the live and expecting feeders to aggressively test major support at 13000.
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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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