Written Commentary
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LEAN HOGS:
Cash will be called steady to higher for today after trading slightly higher yesterday and sharply higher earlier Monday. Open interest was down just under 500 cars yesterday. The index is moving higher and this should continue and thus drive the Oct LH higher. The latest index was quoted at 6535, up 80 with today’s index expected to exceed 6600. The cutout was up $4.55 yesterday with all pork primal cuts quoted higher which is very rare. We are bullish and trading Oct from the long side through outright length, long calls, long calls/short puts and bull spreads in futures, Oct/Feb. My upside target is north of 7300. Surging demand for pork, both domestically and in the export market coupled with an uncertainty surrounding the size of the fall runs appears to be the driving forces at play.
LIVE CATTLE:
LC futures continue to climb the wall of negative fundamentals. The board is back to enhancing the premium to cash. This will push back marketings and keep weights heavy. I’m hearing for this week that packers are slowing the kill which is never bullish. Weekly kill projections are dropping to 640-643 from 649-650 earlier in the week. Beef is expected to continue to decline. The impressive premium in the deferred contracts will spur placements. This would all be ok if demand was hot, but it’s not. Retail beef prices in the U.S. remain high, food service is a train wreck and export demand is poor. Boxed beef loads slated for export last week were down 14% compared to last year and down 37% from the previous week. Hedging, taking full advantage of the handsome premiums offered on the board is advised.
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