by Dennis Smith
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A new word is entering our everyday vocabulary; depopulate. Indeed, producers are preparing to depopulate on a large scale as packers simply are not up to the task of processing hogs that have been backed up for six weeks. Weights will likely be reported near 300 pounds tomorrow. There are so few choices left. The hog carcass was down $2.66 yesterday but I’m not looking for a huge drop in the value of the hog carcass. Production is declining. Sure, we’re climbing up from the low mark in the kill but overall, production is declining. IMO the futures market is not/has not come to terms with this realization yet. When it does a strong uptrend should develop. Exactly when this buying is triggered is anybody’s guess. We’ve accumulated some June hog calls and we’ve established long positions in the Dec futures as well as bullish positions in the Dec options. Now we wait. Today’s kill is estimated to come in at 395K compared to 361 last Tuesday.
The on-feed report that is scheduled for Friday will outline another severe drop in placements into the nation’s feedlots. Unlike last month, which saw very active marketings, April marketing will also be down sharply. The trade estimates are; on-feed 95%, placements 76% (of last year) and marketings 74%. We’re establishing bull spreads in the live cattle futures, long June and short August, expecting the June to more premium to the August by several dollars. Cash is looking fully steady to higher compared to last week. Futures remain severely discounted. The kill is projected to come in at only 521K, down 19% from last year which will back cattle up again. Today’s kill is estimated to come in at 96K, up 10K from last Tuesday. COVID-19 is starting to cause problems in Brazilian poultry processors. I’d assume that beef plants will get hit hard soon. The key for the U.S. futures lies in the wholesale beef. How far down until beef finds value?
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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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