Chinese Hog Prices….The Dog Hit the End of the Chain By Dennis Smith
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Tuesday October 8, 2019
Does it matter what the cash market does today? It should but will it? Cash was up .50 to $1.00 yesterday. The CME lean hog index stands at 5922 with Oct futures closing yesterday at 6050. So convergence is happening quickly. Suddenly the Dec contract is not very far from the index. Futures were limit down yesterday meaning we’re on expanded range of limits today, 450 points down or up. Open interest surged higher by 4,000 contracts yesterday. In the wake of the week long Chinese holiday the dog may have hit the end of the chain. Reported overnight the Chinese domestic hog price for 10/08 is 32.56, up 3.58 which equates roughly to $2.84 per pound. Chinese hog prices are more than five times higher than U.S. hog prices. Contrary to what many believe, there are still Chinese tariffs on U.S. pork. China has a major problem on their hands. Trade talks later this week are not expected to go well which is why futures closed limit down yesterday. I’d look for buying to surface today.
Open interest in LC was down 345 cars yesterday. The negotiated trade last week was reported at 93,000 which is up 3% from the prior week. Packers have inventory around them. The show list is substantially larger this week, estimated at 289,300 compared to 263,300 last week and 225,936 last year. The week’s kill is projected to come in at 645,000 compared to 647,000 last year. Beef is at lows for the entire year and searching for a seasonal bottom but not there yet. Dec futures filled the gap on the chart yesterday. We’re anticipating a seasonal high in futures. It’s time to begin selling futures for both the spec player as well as the hedge client, in my opinion. Look to execute all hedges in the Dec, Feb, April and June.
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