Written Commentary
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Thursday March 4, 2021
LEAN HOGS:
Open interest was up 2,359 cars yesterday with open interest dropping in the front month April (most active contract by far) and rising in all other contracts. July through Dec posted fresh contract highs. Cash was higher and cutout was lower. Packer margins have narrowed dramatically and they’re now approaching breakeven. The demand for hogs is inelastic. They have demand commitments to meet and, evidently, the supply of hogs is shrinking. It’s called competition, something we’ve seen very little of in the hog industry for years. Weekly pork export sales were impressive at 59,600 MT, up 68% from the 4-week average. China was the largest buyer, by far, booking 28,000 MT followed by Mexico (14.5) with Japan, South Korea and Canada rounding out the impressive bookings. Shipments were stellar, reported at 40,000 MT with China receiving 13,400 MT followed by Mexico, Japan, South Korea and Japan. Our strategy this week has been to purchase Oct LH 102 calls. My current upside target in April hogs is 9800. Yes, I’m bullish.
LIVE CATTLE:
The recommendation is out to buy April LC at 11930 or lower with a stop in place at 11830. It’s a tight stop. Keep positions fairly small and then look to add to it if we don’t get stopped out. I’m speculating that the board will begin to anticipate an end to the flatline cash steer market within the next few weeks. Cash was actively traded yesterday at steady money. Weekly beef export sales were excellent at 22,600 MT, up 15% from the 4-week average. South Korea was the largest buyer last week, booking 6,800 MT with China the second largest buyer, booking 4,500 MT followed by Japan, Taiwan and Mexico. Shipments were also impressive at 19,700 MT, up 20% from the 4-week average. The largest receiver of beef was Japan followed by South Korea, China, Mexico and Taiwan. Open interest declined by 821 cars yesterday. Again, we’re taking a stab at the long side of April futures today.
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