Phase One Agreement with China Appears Highly Likely By Dennis Smith
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Tuesday October 29, 2019
Each day that we process 491,000 pigs, each week that we process 2.7 million and the cutout values don’t collapse, brings us closer to the day, the week, when numbers begin to drop off. According to the hog & pig, which has been accurate by the way, butcher hog supplies will drop off from 105% to 102% by the middle of Nov. Lean hog futures staged a nice turn around yesterday on volume of 33,700 with open interest down 450 cars. So there’s nothing conclusive in that data. A phase one deal looks highly likely. The Chinese are bending in an attempt to forge a deal. Another example is their willingness to drop their nearly 5-year ban on U.S. poultry imports. Sanderson Farms stock soared by 15% yesterday. Someone believes a deal is close at hand. Our strategy has involved accumulating Dec calls and we bought June futures yesterday, adding to our length.
Live cattle futures are now attracting new open interest daily almost like you’ve flipped a light switch. LC volume yesterday was 47,200 with open interest rising by 3,200. I did not pick up any real feature in the spreads. All contracts were just generally higher. While the outlook is for another round of higher cash again this week it needs to be noted that the show list is larger this week. The list is estimated at 262,900 compared to 257,200 last week. More numbers are available in both the north and the south. No one can explain why the grading is so poor. The tight supply of choice beef continues to support the cash. The choice/select spread closed at $27.14 yesterday. The weekly kill is projected to come in at 650,000 compared to 653,000 last year. The number of heifers on-feed continues to increase signaling, perhaps, that expansion in the cow herd has stopped. Finally, the performance of the beef continues to drive processing margins higher and give room, plenty of room for packers to chase a bit for cattle. Futures have been straight up since early Sep with only minor corrections. No recommendations.
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