MORNING LIVESTOCK REPORT
By Dennis Smith
Follow me on Twitter @denniscattle
Thursday July 16, 2020
MINI S&P 500: We like the idea of picking a top in the stock market. Price action is very toppy. Consider the following option strategy.
• Establish the Aug week 2 2900/2800 put spread for 8.00, or $400 in premium. These expire four weeks from tomorrow on Aug 14th. Maximum profit potential would be 100 points in the mini or $5,000. Maximum risk is the premium paid plus commissions.
I expected a really strong and impressive weekly export report out of pork. Did not get it. The numbers are not bad but not scorching hot as I expected. Weekly pork exports were 38,500MT, up 16% from the 4-week average. Buying was solid and dominated by Mexico and China. Shipments fell off to 29,300 MT, down 8% from the 4-week average. China was the largest receiver of pork last week. Chinese pork production in the 2ndquarter dropped 4.7%. Pork production has been lower for seven consecutive quarters. Production for Jan-Jun was down 19%. Obviously, their talk of successful re-population was incorrect. Recent flooding has spread the ASF virus further. U.S. production this week will rise more than 10% yet we’re seeing a bottom formed in hams. Food service demand is still having problems so our conclusion is that exports continue to ramp up. We’re trading from the long side.
After touching a 4-year low recently, open interest is now pouring into the live cattle futures market. Open interest from yesterday’s rally was up 2,887. This is loads of fun if you’re a spec going along for the ride but for the short hedger, trying to manage risk, the fund money pouring in and the dramatic change in the basis is becoming a real pain. Aug LC has moved from about 20 cents under the cash to 6 cents over. The beef was stable yesterday with choice cutout hovering just above $200. Because our clients don’t like margin calls that can’t be explained, we’re pulling the plug on Aug hedges. We’re not hedge further out, thankfully.
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. This report is a solicitation.