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Most Hog Contracts at Contract Highs: Will They Hold?

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Thursday October 26, 2017


Honestly, were just not hearing much in the hog market. Slaughter this week should be record large and weekly kills out front could approach 2.6 million pigs. Pork demand is good but will demand be good enough to keep product stable in the face of this type of production? Currently futures are predicting that cash has topped and will pull back. Dec paper is under the CME lean hog index. Futures are close to recent highs in the Dec with deferred contracts sitting at contract highs. Open interest is creeping higher meaning new spec length continues to enter the market while hedgers take the other side. Indeed, hedgers should be willing sellers to lock in profitable prices in the face of record large production. Our expectation is that futures will peak and dive lower, at least into the seasonal low timing into November. Weekly pork export sales were down 15% from the 4-week average. China was absent. Pork shipments were up 10%.

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Packers are bidding $1.11 with asking prices for cattle resting at $1.14 and higher. The choice beef has been stable this week, hovering just above $200.Weight data comes out later today. Weekly beef export sales were up 7% from the 4-week average while shipments were down 12%. The dollar is trading on its highs for the month of October. Should this trend continue, it could be a drag on export activity. The Dec LC took out the July highs yesterday but stumbled and closed 140 points off the highs. While technically not significant, its possible that a top is being forged. Mondays low was 115 and this represents the new support for the Dec contract. Everyone is expecting higher money to be paid this week for show list animals. What about next week? Nov FC raced higher early yesterday but closed way off the highs, formed a doji pattern and the action could represent a double top. Open interest edged higher in both markets. Funds are long LC and thought to be record long in FC.

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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).

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About the author

Dennis Smith has been a full service commodity broker specializing in grain and livestock trading for over 25 years. Dennis has a wide range of customers, many of whom are grain and livestock producers. Dennis develops and helps execute hedging and speculative strategies in his Daily Livestock Wire which is prepared each afternoon exclusively for his customers.

Dennis grew up in Central Illinois before launching his brokerage career.

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