Follow me on Twitter @denniscattle

Tuesday August 22, 2017

LEAN HOGS

Cash was sloppy again yesterday with the late report confirming prices paid were down $1.50. The cutout was not lower but up .42 so the packer continues to operate at impressively handsome processing margins. Most, including me expect margins to narrow as two new plants come on-line over the next thirty days. In the product the hams have stabilized whereas bellies have not. Bellies topped out last week which is normal for this time of year. Loins are expected to trade in range with butts well supported by fall demand and ribs also supported. Overall the product appears to be in decent shape approaching the fall runs. The USDA will release a monthly cold storage report today. Overall this report is expected to be positive and demonstrate continued strong demand for U.S. pork. The seasonal low is not due until this time next week but it could easily come in several days early.

LIVE CATTLE

I’ve uncovered one item that is potentially friendly toward LC cash and futures. Out-front bookings of beef are turning very active. I’ve also uncovered a new item (at least to me) that is potentially negative toward LC cash and futures prices. Packers are having problems with labor occasionally causing disruptions at slaughter facilities. This could develop into a major problem in the fourth quarter as production is projected to rise substantially (see the bar chart below). Yesterday’s action was a knife fight with no conclusive winner. The trend remains downward which means it’s up to the bullish traders to turn this market around. That’s not expected to happen in front of rising production schedules. For the first time in three weeks there was no cash activity on a Monday. Beef continues to suffer under the weight of discounting to move. Weights continue to increase. We’re bearish.

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. In addition, the author of this piece currently trades for his own account and may have financial interest in the following derivative products: (corn, soybeans, soybean meal, soybean oil, lean hogs, live cattle, feeder cattle).