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Lean Hog Commentary
Of the five markets that we did our seasonal Thanksgiving to Christmas seasonal study on hogs have the strongest consistent move. Of the past 15 years February lean hogs have rallied only three times for an average of 1.16. There were 12 instances of declines in this period with an average of 3.30.
With our expectation for a Friday kill of 418,000 head and a 370,000 run for Saturday we see a 2.106 million head slaughter this week. That would be 6.0% over last year. That is a little under the 6.1% to 7.4% year/year increase seen in the past three weeks. Don't forget that USDA suggested that expansion dropped off sharply this spring. The October 1 Hogs and Pigs report suggested an 8.0% year/year gain for the 120 - 179 lb weight-group of market hogs then only a 3.0% gain for the 50 - 119 lb numbers. The market will be watching for how abruptly production changes in the coming weeks.
The negative price seasonal price story is not completely a story about lower cash hog prices. Typically cash hogs fall into late November/early November then stabilize and rally slightly. This comes after hog slaughter peaks in the second week of December and falls thereafter. The issue with the February hog contract is that December expires on the 14th and traders take off its premium. We don't expect this bearish move this year as the February is actually at a discount to December.
On-the-Go will be off the remainder of this week for the Thanksgiving holiday and will publish again Monday November 30th. Happy Thanksgiving!
(10/16) Sold December $68 hog call 1.55, risk to 2.10, objective 0. Closed 0.05.
(11/12) Sold February $55 hog put 2.40, risk to 4.20, objective 0. Closed 1.97.
There is a risk of loss when trading futures and options contracts.