By Dennis Smith
Hogs posted fresh contract highs for the third consecutive session on Friday with OI rising by 3,200 cars. Total lean hog OI is record large at over 320,000 cars. The volume of trade in lean hog futures has been very large the last two sessions, on either side of 70,000 cars. For comparison, Friday's volume of trade in live cattle was 54,000. The funds are fully loaded with speculative length in the hogs, likely holding a record large fund long position in excess of 80,000 cars. For comparison, the funds were long about 3,000 cars this time last year. Fundamentally, the bullish trade believes there's a shortfall of hogs with last week's kill lighter than expected. The talk is the shortfall will continue this week. Perhaps, but it would extremely rare for tight hog numbers to persist in Sep. The Goldman Roll starts today and will continue all week. Will the market top out or will Oct hogs continue to move upward? In my opinion we'll likely top out. Time will tell.
Japan reported better than expected GDP growth in the second quarter and Chinese exports, as reported overnight, were strong. This is good news for beef exports which is going to be a key driving force in cattle prices moving forward. The cash steer market traded steady on Friday in the S. Plains at $1.23. Prices in the north continued to leak with NE hot beef trading at $194, mostly down $2 from the previous week. The steady cash in the S. Plains is the fourth consecutive week of steady money. All indications are that fed cattle supplies will continue to tighten. I'm hearing that Aug placements into the feed yards were down about 10%. As the case with the hogs, the Goldman Roll begins today in the live cattle. Look for live cattle and feeder cattle futures to likely develop support during the course of the trading week.
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