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Lean Hogs Poised for Further Upside Correction

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Thursday November 16, 2017

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I did not notice this yesterday but the most active Feb LH contract posted a doji pattern with the settlement near the session high. After the recent sharp drop this could indicate further upside correction or upside back and fill in the short term. If so, consider this correction another selling opportunity. In the front month Dec, a jump back toward 6300 would represent an excellent opportunity to purchase some inexpensive puts, in my opinion. Were focused on a few items moving forward. First, it appears highly likely that the pork carcass has topped. Weakness is expected in hams, loins and possibly butts. The pillar of strength, bellies, wont be able to stabilize the pork carcass alone. Second, export sales moving into the end of the year appear to be slowing. Weekly exports were dismal with sales down 16% from the 4-week average while shipments were up 6%. Third, sharply lower Chinese pork imports this year has resulted in a glut of pork on the world market. Fourth, hog weights continue to increase suggesting that numbers may have been backed up this fall. And finally, fifth, the hugely available feed supply and low corn prices will keep expansion alive and well in the U.S.


Beef packers were buying cattle at $1.19 early on Wednesday ahead of the FCE. We later discovered that not everyone was privy to the $1.19 bids. Such cherry picking, by the way, is a very negative indication. Later, however, bids firmed up to $1.20 and packers appeared able to purchase all the cattle they desired. For reference, paying $1.20 was still down $4 from last weeks price. Choice beef has been lower every day this week. Look for this to continue. Finally, the USDA will issue their monthly cattle-on-feed report tomorrow at 2:00. Look for active Oct placements to be confirmed on this report. We will be adding to hedges in the June LC contract on any strength today. Were already hedged in feeders and weve held most of our hedges in the December during the duration of the recent huge rally.

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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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