Nice Jump In Open Interest in Hogs On The Rally By Dennis Smith
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Tuesday July 2, 2019
Cash will be called lower simply because it can. Packer margins are very close to breakeven. At some point, likely soon, butcher numbers will drop off, cutout should grab hold and cash will begin climbing higher. Futures appear to be anticipating such a development with the higher performance since the release of the hog & pig report. Yesterday’s impressive rally occurred on volume of 69,800 with open interest increasing by nearly 3,500 cars. Open interest was down in the July and Aug but reaching higher in all other contracts. Consider that the good news from the hog & pig report should continue to bring buyers into the deferred contracts. Trump indicated that he’s “happy” with the job Mexico is doing in handling the flow of migrants. For now he stated that tariffs against Mexico are off the table. I suspect lows are in place but I also need to see a solid close above 8600 in Aug hogs for confirmation. Sources indicate that losses continue to mount in Asia due to ASF.
The show list is smaller this week, estimated at 237,600 head compared to 258,300 head last week. Numbers are down in the north. This week’s kill projection is pegged at 567,000 compared to 665,000 last week. Of course it’s a short kill week with all plants dark on Thursday. Wholesale beef is expected to soften and edge lower as demand has peaked. Cattle weights have bottomed out which is normal. Consider that cash will trade steady at best as packers continue to have control. The discounted board should develop support below 10400 in the Aug and below 10500 in the Oct. Consider it highly likely that an early summer low may already be in place with the current double bottom formation. IMO corn will likely stage another leg upward in the second half of July which could force feeders downward one more time. Consider a test of support at 13000 possible. Also consider that such a test should likely hold.
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