Dennis Smith from Archer Financial Services, May 18th 2017

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Cash Hogs and Pork Cutout Surge on Seasonal Demand

 

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Thursday May 18, 2017

 

LEAN HOGS

Cash was called lower early yesterday but came in fully steady. Nice try by the packer to purchase pigs at lower money but it did not work. The cutout soared, calculated up $2.18 at $87.26. Two weeks ago we were talking about the cutout likely leaving the $75.00 area in the dust and here we are with the pork carcass now above $87.00. Folks, the hog slaughter has barely dropped off. No, up to this point this is not a supply issue but a surge in seasonal demand issue. Assuming that butcher hog numbers eventually WILL drop off, we visualize a substantial move upward, yet, in lean hog futures. There’s a seasonal low due early next week.

 

LIVE CATTLE

The cash steer market has traded lower again this week. Prices are roughly down 3 to 4 cents in the live market and down from $6 to as much as $11 in the hot beef market. I’d expect more cash trade today and Friday. IMO the cash market will not continue to weaken but in fact may begin to firm back up. The beef was lower for the first time in a few weeks. Most likely this is not a major top in the beef. The demand that drove beef prices to the highest levels in two years is not likely to dry up and go away. Futures have closed off their session lows the past two days. IMO we’re likely carving out a meaningful low and preparing to test the highs. As discussed in last night’s “evening livestock wire” we consider the entry of U.S. beef into the Chinese market one of the biggest stories to hit the cattle market in the last ten years. Futures have barely reacted to the news. At the very least I’d expect the strong basis to weaken. Finally, I’d like to quote the USDA in their May Livestock, Dairy, and Poultry Outlook; “Expectations are that prices (cattle) will remain relatively strong, despite declining from recent peaks, as packers maintain relatively high rates of cattle slaughter to mitigate the effects of lower carcass weights.” I remain bullish.

 

If you would like a free 30-day trial to the evening livestock wire send an email to: dennis.smith@archerfinancials.com<mailto:dennis.smith@archerfinancials.com>

 

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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