By Dennis Smith
Live cattle futures are trading slightly lower across the board while the feeders continue to trade firm in impressive, bullish fashion. The feeders are underpinned by tight supplies of replacement cattle, by vastly improved pasture conditions in the Southeast and Northwest and by lower trending corn prices cuing off the idea of a record large corn crop about to be harvested.
Live cattle futures are a bi-polar market with the October pushing down into 3-week lows yesterday, while the April traded up to six month highs. Beef production is slated to drop off substantially in the months ahead. At the same time, it appears highly likely that beef exports will be increasing during this timeframe, likely sending cash cattle prices upward and through all-time highs. I'm long-term bullish and trading from the long side in both fats and feeders
Cash hog prices traded mixed yesterday with prices up $1.00 to $1.50 in the West and down $1.00 to $1.50 in the East. I'm looking for pressure in cash hogs during the course of this week. Packers will likely gear up for a large Saturday kill to make up for Monday's holiday, but typically this does not mean that cash bids will firm. Hog supplies and numbers are increasing which is typical for September. The product is also working lower with the pork carcass losing $5.60 last week. Look for this type of pressure in the product to continue during September.
While the pork fundamentals are negative the discounted board continues to grind higher with the October trading above 8,800 today and poised to challenge the contract high of 8,895. We're long puts and certainly disappointed by the action. However, the beauty of trading options is simply buying time for the market to reverse direction, in this case to top out. If you're spec short futures, consider covering on a pit close above 8,815. Don't rule out the possibility of a reversal in the next couple of sessions.
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Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.View All Blogs »