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Next Step Would Be For China to Drop Their Tariff on Pork

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Tuesday December 4, 2018


Packers will try to buy hogs lower today. This will be their strategy until it simply does not work. The action in the Dec and action in the Dec/Feb yesterday indicates that cash will likely be higher by the end of the week. For reference the CME lean hog index stands at 5636, and stabilizing, with Dec futures posting a settlement yesterday at 5800. Cutout was higher, open interest was lower. The massive range in the Feb, higher early then sharply lower only to close about 60 lower and settle 200 off the session low saw open interest in the contract decline by 334 on volume of 30,200. Obviously a massive change of ownership. Trying to look ahead, the most likely development will be for the Chinese to drop their tariff on U.S. pork. Need has clearly been established as they were confirmed last week buying U.S. pork for immediate and out-front delivery. ASF continues to spread. History demonstrates it could be two to three years before they successfully eradicate ASF from their herd. This will cripple their ability to produce pork and magnify their import needs. Look for an upside recovery today of course laced with lots of volatility.


The show list is estimated to be larger this week at 268,500 compared to 250,500 last week. My sources indicate smaller numbers available in TX, larger numbers in KS, and substantially larger numbers in NE and slightly larger in CO. Despite evidence that funds are adding to their long position in LC, the market has very little mojo at this time. Front month futures are fully content to remain discount to cash. Were content to watch and wait for a seasonal pullback into the middle part of December. Granted, its highly possible that last weeks spike low will indeed represent the seasonal low. Were interested in establishing the Feb/Jun bull spread in the face of what appears to be a tough winter for feeding cattle. So we wait for a pullback here as well. No bids surfaced yesterday. Generally the wholesale beef is acting a bit better than expected. Expect a mixed open and a choppy trade.

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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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