by Dennis Smith
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Hog futures traded in shear panic mode yesterday. Volume was huge at 135,100, the largest volume since May 7th. Open interest was down nearly 4,000 as traders simply said get the heck out. The reasons for panic were real but also grossly overblown. The trade war with China has escalated into a nasty confrontation. Trump officially labeled China a currency manipulator. China fired back by indicating they’re done buying U.S. Ag goods. Specifically, the hog market is likely not facing any changes from this escalation, thus the panic selling is/was unjustified. The tariff of 50% remains in place. This has not changed. The Mexican tariff is not in place any longer. China will likely not purchase any more pork from the U.S. this year, we had already expected this several weeks ago. IMO, they will need to continue shipping what they’ve already purchased. In addition, they can be expected, at some point this fall, to book very large amounts of U.S. pork for delivery next year. Cash is called lower but that simply may not work much longer. Look for the obvious, lots of volatility but I look for an impressive recovery away from yesterday’s lows. June pork exports were up over 9% compared to June of last year.
Feeders witnessed huge volume of trade at 26,800, largest daily volume going back months. LC volume was active at 83,900 with open interest down 500. The weekly kill is projected to come in at 641,000 compared to 626,000 last week. Despite the larger harvest this week, my sources expect the beef to grind higher. The show list is about the same size as last week but the negotiated volume of trade last week, at 97,500 indicates packers have cattle around them. The market may test resistance in the short term but a huge move higher is not expected. Consider the high likelihood that the U.S. economy is headed toward recession. Beef production will be very large this fall. We’re looking to hedge production.
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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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