Do Not Believe Everything You Read

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Tuesday June 18, 2019


Cash was not well established yesterday but appeared to be fully steady to up .25 instead of down $1.00 as projected at noon. Were still wading through a huge hog supply for this time of year. The kill for this week is projected to be fall like in size at 2.447 million pigs. Futures closed higher yesterday with a roll evident in the open interest with July OI down 2,900 with Aug OI up a like amount. Total OI was up 560. Theres a story circulating that Chinese warehouses are full at port locations. I dont believe the story and second theyll quickly build new cold storage facilities. Theyll have to. Reports indicate pork production in China will be declining for five years or more. Lastly, I read a report late yesterday that indicated domestic pork demand is rising as evidenced by large production during April and May while accompanied with higher pork prices. Its not because of exports, exports have been lousy. Exports in the first four months of the year have been down nearly 7%. Yet the USDA is projecting total pork exports this year to rise by 10% versus last year. This would suggest that U.S. pork exports will be set on fire in the second half of this year. Indeed, the Mexican tariffs have been rescinded and starting in July Chinese importers can utilize waivers against the Chinese tariff. Hog futures are undervalued and very likely poised to rally sharply, in my opinion.


Nice rally in LC and FC futures was sponsored by the discount to cash. Were not hearing anything fundamentally bullish. Near term the talk is steady at best in the cash steer market and long term huge production is expected to anchor cattle prices. In addition, demand is slated to peak by next week. On the backside of Fourth of July demand, beef demand takes a vacation. This is not a bold statement, this occurs every year. Look for hedging opportunities on strength.

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