by Dennis Smith
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Cash hog prices yesterday turned out higher with cash out west up $3.00 while the national market was up $1.50. There is a mixed early call in the cash for today. Nothing to report regarding volume and open interest. Volume has been very light with a small net change in OI. Some call buying in June options was noted yesterday. Futures are clearly struggling as the product pulls back. But why? June futures are sitting at 5665, the index at 6704 and the value of the hog carcass resides at 9770. I understand there’s a huge backlog of hogs but I also believe many of these will never see the inside of a processing plant. Like I’ve said, there’s no playbook for these fundamental circumstances. I believe it’s bullish, many others believe it’s bearish, thus, we have a market. I really don’t want to see a close in the June below the 40-day moving average which comes in today at 5610. Average hog weight data comes out later this morning. Monthly cold storage is out Thursday afternoon and the hog & pig is out next month.
Jun LC staged an inside day yesterday with a doji pattern. The open and close were the same. For today I’m wondering if this contract gaps higher? Futures remain way discount, too far discount in my opinion. We’ve traded over 16,000 head this week and have established the market at higher prices, mostly 119-120 with all trading so far in the north. The FCE goes to work today with 2,782 head signed up to sell. The beef was lower yesterday but it’s not dropping like a stone. Reports indicate that Brazil is getting hit hard with COVID-19. This could disrupt their meat processing and possibly even close down their ports for a period. The Chinese appear concerned about this given the breakneck speed of soy imports from Brazil in the first half of May. The reason this discussion is in the beef section is because Brazil is the largest exporter of beef in the world. Trumps comments yesterday about blocking the import of cattle into the U.S. was an ill-advised shoot from the hip comment. This will never happen. I’m expecting a higher trade in cattle futures today.
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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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