Tuesday December 17, 2019
Monster kill this week with the projection at 2.802 million pigs, a new record. Cash yesterday was steady to down .25, not bad considering the scope of supply. Futures tested resistance yesterday yet did not penetrate on a close. Funds continue to defend their short position in hogs. The funds are short hogs, short soybeans, short meal, short corn while being long cattle and long soybean oil. Cash is called steady to possibly soft today, definitely not outright lower. Impressive. The muddy waters are beginning to clear regarding China tariffs and/or no tariffs. The Chinese government has confirmed that tariffs on pork and soybeans officially remain in place but they’re granting waivers on a regular basis to effectively eliminate the tariffs. They also stated overnight they will ensure a stable pork supply into the New Year holiday and into the springtime festival holidays by pulling from the reserves and expanding imports. There it is….expanding exports. Couple this announcement with the fact that all three major packers will have paylean free pork to ship by early Feb with comments made earlier by Smithfield to expect a bacon shortage in the near future. This all points to a rapid increase in pork exports next year. I like the Feb 80 calls for 100 points.
Yesterday’s action was a back and fill session on volume of 52,600 with open interest expanding by 2,460. Weakness in the bull spreads provided another opportunity to add to the Feb/Jun, a favorite position of ours. Beef is beginning to stabilize. The show list is much smaller but packers are buying for a disrupted kill next week. This week’s kill is projected to come in around 665,000 compared to 662,000 last week. The aggressive kills are bullish. The chart pattern is bullish. The major seasonal low kicked in last week which is bullish. Packer processing margins, while still positive, have narrowed a bit since the Tyson plant in KS came back on line. Use weakness today to unwind any remaining hedges in the Feb and/or April and to add to bullish spec positions. I favor accumulating the April LC 140 calls at 40 points. These calls expire April 3rd, or 108 DTE.
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