We're still waiting on the cash steer trade to develop for this week. Bids stand at $1.15 to $1.16 with asking prices closer to $1.21. The cash trade occurred last week at $1.19 after trading at $1.20 for the previous three weeks.
I'm expecting a slide in the cash market in tandem with continued erosion in the wholesale beef. The choice beef cutout was down 1.25 yesterday and the choice/select spread closed at a new low of $7.02. The spread peaked near $20.00 earlier in the spring. The country has experience a surge in feeder cattle prices at the auction barns this week. It seems the boys in the country have the opinion that we're on tap for a record large corn crop. This outlook, in tandem with light feeder receipts, has forced cash feeder prices higher. I've been purchasing large numbers of August live cattle puts this week
Cash hog prices held steady yesterday while the cutout continued to tumble. Pork packer processing margins are now in the red. This should keep cash bids on the defensive into next week. The poor margins explain a Saturday kill estimated at only 20,000. However, the weekly kill will likely come in up 3 percent from last year. Average hog weights are running up 3 to 4 pounds from last year. Increasing production in the face of peaking demand continues to erode the pork fundamentals. The bullish trade, guys that have made money in the July hogs, want to be long August due to the discount to cash. Buying the market, just because of the discount is not a good enough reason, in my book, to position from the long side. I'm waiting for a close below 9,500 to bring in more aggressive, liquidation type selling. I'm bearish and using an initial downside target of ,9400 to take partial profits on bearish option positions. The head-and-shoulders top formation gives me a final downside target of 9,200.
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