LEAN HOGS

Cash hog prices were higher to sharply higher yesterday, quoted up .50 to $2.00. Impressively, hog receipts were not heavy. The cutout continues to hold steady to firm, quoted up .05 at $85.14. The carcass is holding levels not seen since last July. Margins continue to leak but also remain profitable. Futures displayed a flash crash yesterday, dropping 200 points in less than 30 seconds. There was no clear indication or statement from the CME to explain exactly what happened. Consider this a warning to not be overly confident in regards to the current uptrend. Having said that, fundamentally, I don’t see any cracks in the armor. Some are willing to speculate that bellies will top and drop and drag the hog carcass lower in the process. I doubt this will happen given the tight stocks and inelastic demand facing the belly market. In addition, Easter demand is now surfacing and should firm up ham prices. Loins are cheap as are ribs. Finally, butts continue to attract strong export driven demand. No, I don’t see a drastic change in the fundamentals. We were stopped out of June length near entry levels on the flash crash. However, orders to buy April hogs were filled on the crash as were GTC orders working to purchase April calls. Volume yesterday was moderate but not huge at 39,000 with open interest dropping by 2,300 cars. The flash crash is unhealthy for the market and will discourage traders from participating. It’s my speculation that HFT are using the buzz word “border tax” which may have triggered a large sell order. The livestock markets simply can’t handle such size in an orderly fashion.

DH, you have been giving some excellent stats and idea's on hogs. I just have to do a better job of trading them!!

Dewey