Written Commentary
By Dennis Smith | 312-242-7905 | Follow me on Twitter @denniscattle
LEAN HOGS:
Open interest surged higher by 2,462 contracts yesterday in lean hog futures. My guess is that yesterday’s impressive performance will be matched with another strong performance today. In the hog industry there’s two interesting things occurring. The price of feeder pigs and isowean pigs is powerful strong and sow prices are trading between $68 and $69/cwt. The top butcher hog price yesterday reached $76 ($57 live) in the carcass. So, you’re seeing sow prices bringing higher money that butcher hog prices. It appears the demand for highly processed items such as brand label bacon, sausage and pizza toppings is so strong and supplies so tight that sow processors are bidding up for breeding stock to meet demand. Cold storage comes out today at 2:00, it should be bullish. In China, live hog prices are trading around $2.35/lb compared to 58 cents in the U.S. The price of 35 lb feeder pigs in China is fetching $265 per head. And to think the USDA is trying to tell us that U.S. pork exports to China is going to slow? Highly doubtful. If April hogs happen to trade lower today, buy some calls. Look for a higher open and higher close. On the chart, a close in April above 8680 confirms a bull flag formation and signals a move in April to 9600. We are on-board.
LIVE CATTLE:
Open interest edged upward by 777 contracts yesterday. The close, while mixed to lower in the first four contracts, was well off the session lows. Plain and simple; the show list is smaller this week, much smaller as cattle have been set back substantially and the beef is soaring, still soaring like an eagle. IMO, the acceleration upward in the cash steer market begins in earnest this week. Even after the beef tops, which some now say won’t happen until next week, packers will keep paying higher. There’s lots of margin to work with. The feeder index took a big jump but I’m told that wheat cattle will be showing up at the auction barns over the next several weeks. I’m not looking for feeders to turn real strong. I’m bullish live cattle and we executed bullish option plays yesterday in the April.
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