by Dennis Smith
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Volume on the mixed close yesterday was 63,000 with open interest edging higher by 1,800 cars. Considering the market was lower most of the session, I’d rate the higher open interest as new sellers, including hedgers, coming into the market. Cash is expected to trade lower again today. The latest CME lean hog index resides at 6657 with Oct paper closing yesterday at 6712. While we anticipate the Oct will continue to gain on the Dec, but an overall rally higher in flat price is unlikely at this time. We are actively hedging at these price levels and trying to get hog producer clients interested in event protection. Weights are increasing and the kill is down from projected levels. The kill may be further hampered by hurricane Dorian. This is a very poor time of year to have the kill disrupted. The hogs will keep coming as the industry continues to expand with record large production coming down the pipe. July export data will be released today and it will be excellent. Weekly exports will be released Friday morning due to the holiday on Monday. We suspect a higher early trade followed with another selloff on Friday. Trade negotiations will resume in early Oct. It would appear that the Chinese are now in charge of the pace of the trade talks. An agreement is extremely unlikely next month. The best we can hope for is some kind of postponement of tariffs, a cooling off period. I do expect the 60% Chinese tariff on U.S. pork to disappear in some fashion next year as the Chinese will need pork, huge amounts of pork.
Cash is working lower almost on a daily basis. The CEO of Tyson Foods indicated the KS beef plant won’t be up and running until January. This means that protection is warranted for Oct as well as Dec LC. Same in feeders. If packers continue to work the cash steer price lower, and I’m assuming that corn is near a bottom, feeders are due to tumble. Buying Oct FC puts is highly advised on this rally. My sources indicate the beef has topped and will start grinding lower. Again, packers will work to keep huge margins intact. Cash has already traded down $3 to $5 from last week.
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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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