June Hogs Aiming to Fill A Gap On the Chart By Dennis Smith
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Tuesday April 23, 2019
Futures closed sharply lower yesterday on volume reported at 59,700 with open interest surging higher by 4,500. So traders are now going short lean hog futures in the face of a disease that is threatening over half of the world’s pig population. I wonder how that’s going to end. Cash prices were called sharply lower at noon with the late cash report showing prices paid yesterday were down .25 to $1.00, mostly down .50. This was a mild pullback in the cash after prices were sharply higher on both Thursday and Friday. Spreading dominated the trade on Monday. Take note that while the Jun/Oct and Jun/Dec spreads collapsed into new lows, the May/Jun soared into new highs. We stated last week that the Jun/Oct spread needs to close above 325 to confirm a bottom in the spread. We are in the process of rolling all June calls, positions we’ve accumulated all winter, into Aug calls. Our upside targets remain substantially higher than current highs. June futures appear to be aiming at filling a gap on the chart just below 9200.
While the show list is larger this week, estimated at 299,500 head compared to 284,900 last week, we’re still expecting higher cash steer prices to occur this week. This is due to seasonal demand, powerful seasonal demand in an economic environment in which unemployment resides at a 50-year low. We’re also not seeing as many cattle show up on the list as expected due to the severity of the winter. So the slaughter rate is not accelerating quickly enough to meet the surge in seasonal demand. There was no change in open interest on yesterday’s rout. As sellers exited long positions news buyers are taking their position. The beef continues to crank higher…into new highs for this year and above the highs from last year. There’s a seasonal to go long June and Aug LC and the Aug FC. We’re not trading from the long side but respectful of the seasonal tendency. The cold storage report was friendly toward the beef complex.
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