Lean Hog Commentary: The change in trend for cash hogs from straight down to steady to 50 cents higher in the last couple of days has added to support for futures. This is due to those October features we have noted in the last two weeks. Wholesale pork prices on Friday and Monday were actually lower, so it is clear this is not going to be a raging near term market. We expect this to last into the end of September. Then the building slaughter supplies are expected to retake the trend down for cash hogs. We have projected December futures true value at $65 and will lift hedges at $64 if given the chance. We still like the idea of selling those calls noted below. Given the big step up coming in hog supplies it is hard to see December actually holding a premium to current cash hog prices ($69). For trading we feel the highest probability trade is collecting option premium. Monday afternoon's monthly Cold Storage report may be viewed as neutral to slightly supportive for lean hog futures and clearly bullish to pork bellies. In this report Pork Bellies in Cold Storage as of August 31 were shown at 31.822 million pounds. This is less than our Allendale estimate of 42.906 million pounds and well below the report a month ago when stocks were data showed 59.163 million pounds.
Technically in the Lean Hog contracts the trend is down. The next projected major turn day for lean hogs is not until October 14.
Allendale recommends standing aside lean hog futures. However, as mentioned above we like using Options and have Sold 1 December $72 call at $2.20 and it settled at $1.80.
Live Cattle Commentary: As expected the February and April Live Cattle contracts led the way Monday. This was due to Friday's Cattle on Feed report that showed smaller placement numbers in the lightweight categories, which will finish out during that time frame. While it was a good day for futures, which also had support from outside markets we cannot say the beef-only short-term fundamentals are completely fixed. For the second day in a row wholesale beef prices were down. The trade is interested in the idea that beef demand is falling due to the economy. While we have two lower days in hand we are not convinced this story will be the driver. Both the beef demand concerns and good supply news make for a neutral trading market.
Technically the trend is down in Live Cattle. Was last Thursday's spike lower a significant bottom? The next projected major turn day is not until the 3rd of October for Live Cattle. At the present time we recommend to stand aside the cattle market and keep your money in your pockets.
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