Written Commentary
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LIVE CATTLE:
Cattle futures pulled back yesterday in the face of rising cash and in the wake of a sharp jump in open interest on the strong close Tuesday. Yesterday the open interest eased down by 900 cars. Longs taking profits. The board is now likely to “leak” the premium to cash. This should be expected in the face of large production. The Sep kill, at 2.751 million, was up 4% from last year and the largest Sep cattle kill in nine years. On feed numbers are record large and they’re expected to remain record large into the first quarter. Weekly beef export sales were outstanding at 24,700 MT, up 67% from the 4-week average. Japan was the big buyer, booking 9,900 MT with Korea buying 5,700 MT and China third at 4,300 MT. Not bad given that just a few months ago China would not buy ANY U.S. beef. Recommend to consider some hedges. For COVID protection, recommend accumulating the Apr LC 90 puts at 25 points or less. Feeders saw an abrupt drop in OI on their 200 point rally Tuesday. Yesterday the market failed with open interest rising by 600 cars. IMO, feeders just put in a high.
LEAN HOGS:
After being quoted unchanged to down .50 at noon yesterday, the late cash confirmed that prices were indeed up .50. Regardless of the noon quotes, look for another round of higher cash today. Packers are trying to keep the cash under wraps, this is very obvious. The carcass is unchanged for the week which, I’m told, is good for business. Product is in good shape, offers are light as it might be in July. But this is Oct and the hog runs are not there. This week’s kill will come in lower than last year. Weights, responding to the cool weather and new corn, are now even with last year. The index stands at 7654 with Oct futures at 7280. The index should be north of 7700 by Monday. Weekly pork export sales were reported at 39,500 MT, down 8% from the 4-week average. Shipments were solid at 32,600 MT, unchanged from the 4-week average. Mexico was the largest buyer last week by far, booking 17,900 MT which explains the impressive support in the ham market. China was second, booking 6,500 MT with Canada taking 4,400, Korea 4,000 and Japan 2,800. There’s not been a noticeable bump in export sales since the discovery of ASF in wild pigs in Germany, at least not yet. I remain bullish.
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