We were expecting cash to be fully steady but the early report suggested the cash would be down from .75 to down $1.75. Indeed it would appear packers are a bit disgruntled in regards to margins slipping recently. Futures closed lower with Feb down 95, Apr lost 135 with the summer hogs down 80 to 90. Today’s kill was pegged at 474,000 which was actually 4,000 smaller than daily projections. Kills running lighter than expected seems to be a developing trend. The late cash confirmed that prices were down .75 to mostly $1.00. The closing pork showed the cutout down $1.43 at $67.27.
What to Expect?
Since we were stopped out of June long positions prices have declined well below our exit price, rallied back above our stopped out point and have now retreated back to levels below our exit. It’s a fact that these markets can and will wear a guy down. Fighting the battle every day is difficult. This does not mean I’m bearish. Just that the market is in a holding phase. Waiting until something positive develops.
It would be positive if Mexico and China were to drop the tariffs on pork. Mexico continues to buy large amounts of pork despite their tariff. China has recently started buying some pork despite their tariff which is huge at over 50%. It would be positive if the trade despite with China was solved by the March 1st deadline. And from a market information standpoint, it would most likely be positive if the government shutdown was ended soon.
Hogs are simply facing too many uncertainties compared to the certainty of record large production. Our strategy has been to remain relatively unhedged for producers and to own calls for spec traders, in effect buying time for these uncertainties to become bullish certainties.
ASF in China is a game changer. This story/situation will be impacting U.S. hog prices for years. This first leg/response was a $15.00 rally off the lows. The second leg will likely be larger and much quicker when it happens.
DH, I am still Long & Wrong!!! Above thoughts are from my broker. I think when most of the Longs get stopped out this market will turn Bullish in a hurry. The problem is we can't hurry the Market! it has to do it on it's own good time! I believe that time is approaching!