Written Commentary
LEAN HOGS:
Cash will be called lower. The cutout was up $2.05 at $72.44. Open interest was down 1700 cars on the mixed close. Weekly export sales were awful at 10,500 MT, down 70% from the 4-week average. China canceled 8,800 MT with Mexico the largest buyer, booking 8,800 MT. Shipments were respectable at 34,900 MT, up 7% from the 4-week average. Mexico received 11,000 MT with China receiving 9.9 and Japan 4.0. This news will weigh on the board today, in my opinion. Also, in the news, China announced that the COVID-19 virus has been detected in shipments of chicken wings from Brazil. This does not impact hog futures but it opens up a large can of worms. Regardless, the poor export news will override all. Finally, the National Restaurant Association indicated that in IL, 20% of the restaurants will never re-open. This is very bad news for the hog market. In bellies, 60% of the demand comes from the food service sector. Hams are also heavily dependent on food service demand. The flashy two-day and $5 rally is over. Look for pressure on the board. If prices happen to trade steady today, consider the idea penciled out last night, buy Oct 50 puts/sell 54 calls paying from 25 to 50 points.
LIVE CATTLE:
The volume of negotiated trade so far this week stands at 53,700. This will be revised upward this morning but it indicates that additional cash steer trade will occur today and/or on Friday. Higher prices have been paid. Tops in the south reached $1.05 and in IA they reached $1.07. Most in the trade are already talking about another round of higher cash next week. Perhaps. The weekly export sales were awful, at 11,600 MT they were down 46% from the 4-week average. Shipments were better at 16,800 MT, up 1%. Sources indicated today that one out of five restaurants in IL will never re-open. They’re gone, 20% gone. This is very negative toward the hog complex and as pork prices sink over time, it will weigh on beef prices. We’ve never experienced a hobbled food service industry as this. LC futures are in a bullish mode right now but it won’t last. Production next year will be up 2% and record large. Hedging is strongly advised.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
