Dennis Smith from Archer Financial Services, February 14th 2017




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Tuesday February 14, 2017



Cash hog prices were higher to sharply higher yesterday, quoted up .50 to $2.00. Impressively, hog receipts were not heavy. The cutout continues to hold steady to firm, quoted up .05 at $85.14. The carcass is holding levels not seen since last July. Margins continue to leak but also remain profitable. Futures displayed a flash crash yesterday, dropping 200 points in less than 30 seconds. There was no clear indication or statement from the CME to explain exactly what happened. Consider this a warning to not be overly confident in regards to the current uptrend. Having said that, fundamentally, I don’t see any cracks in the armor. Some are willing to speculate that bellies will top and drop and drag the hog carcass lower in the process. I doubt this will happen given the tight stocks and inelastic demand facing the belly market. In addition, Easter demand is now surfacing and should firm up ham prices. Loins are cheap as are ribs. Finally, butts continue to attract strong export driven demand. No, I don’t see a drastic change in the fundamentals. We were stopped out of June length near entry levels on the flash crash. However, orders to buy April hogs were filled on the crash as were GTC orders working to purchase April calls. Volume yesterday was moderate but not huge at 39,000 with open interest dropping by 2,300 cars. The flash crash is unhealthy for the market and will discourage traders from participating. It’s my speculation that HFT are using the buzz word “border tax” which may have triggered a large sell order. The livestock markets simply can’t handle such size in an orderly fashion.



Live cattle put out session lows (Feb and Apr LC) about 15 minutes after the open and they held the rest of the session and closed off the lows. March feeders put out session lows within the first five minutes of trade and never challenged this low the remainder of the session, closing well off the lows. Cash feeders traded firm to higher at OK City yesterday. Cash feeders traded higher last week. Cash steer prices traded higher last week. Finally, boxed beef prices possibly turned a corner yesterday, closing firm to higher on improving demand. The show list is larger but just slightly larger compared to last week. The list of available cattle remains smaller than this time last year. The FCE has only 4,800 head registered for sale on Wednesday with 56% of these cattle located in NE. We’re anticipating futures to post a low, a seasonal bottom any minute.


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The risk of loss in trading futures and options on futures can be substantial. The author does not guarantee the accuracy of the above information, although it is believed that the sources are reliable and the information accurate. The author assumes no liability or responsibility for direct or indirect, special, consequential or incidental damages or for any other damages relating or arising out of any action taken as a result of any information or advice contained in this commentary. The author disclaims any express or implied liability or responsibility for any action taken, which is solely at the liability and responsibility of the user. In addition, the author of this piece currently trades for his own account and may have financial interest in the following derivative products: (corn, soybeans, soybean meal, soybean oil, lean hogs, live cattle, feeder cattle).





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