Morning Livestock Report July 16

MINI S&P 500

We like the idea of picking a top in the stock market. Price action is very toppy. Consider the following option strategy.

Establish the Aug week 2 2900/2800 put spread for 8.00, or $400 in premium. These expire four weeks from tomorrow on Aug 14^th. Maximum profit potential would be 100 points in the mini or $5,000. Maximum risk is the premium paid plus commissions. 

LEAN HOGS:

I expected a really strong and impressive weekly export report out of pork. Did not get it. The numbers are not bad but not scorching hot as I expected. Weekly pork exports were 38,500MT, up 16% from the 4-week average. Buying was solid and dominated by Mexico and China. Shipments fell off to 29,300 MT, down 8% from the 4-week average. China was the largest receiver of pork last week. Chinese pork production in the 2^ndquarter dropped 4.7%. Pork production has been lower for seven consecutive quarters. Production for Jan-Jun was down 19%. Obviously, their talk of successful re-population was incorrect. Recent flooding has spread the ASF virus further. U.S. production this week will rise more than 10% yet we’re seeing a bottom formed in hams. Food service demand is still having problems so our conclusion is that exports continue to ramp up. We’re trading from the long side.

LIVE CATTLE:

After touching a 4-year low recently, open interest is now pouring into the live cattle futures market. Open interest from yesterday’s rally was up 2,887. This is loads of fun if you’re a spec going along for the ride but for the short hedger, trying to manage risk, the fund money pouring in and the dramatic change in the basis is becoming a real pain. Aug LC has moved from about 20 cents under the cash to 6 cents over. The beef was stable yesterday with choice cutout hovering just above $200. Because our clients don’t like margin calls that can’t be explained, we’re pulling the plug on Aug hedges. We’re not hedge further out, thankfully.