by Dennis Smith |Grain PhD Ag Risk Specialist
Big changes are in store in the hog market as the trade, finally, begins to realize the magnitude of the ASF situation that’s been brewing in China since last summer. When word hit that the disease had spread to Vietnam (in early March) there was no futures market reaction. Futures are reacting now as the trade comes to terms with the realization that a buzz saw, a wave of demand is about to hit the U.S. hog market like a giant tsunami. Deferred contracts have soared with the Oct and Dec posting fresh contract highs over the last three sessions. Aug futures have already taken out their November highs. The April/June bull spread has exploded higher. Look at changes in open interest from yesterday’s explosive rally. Volume was reported at 133,000 and open interest was up nearly 11,000. Open interest in the April was down 8,500 with dramatic rises in open interest in all other contracts traded. Weekly export sales were huge at 50,300 MT with China taking 23,800 or half of the pork sold last week. HUGE AND JUST GETTING STARTED. Shipments were 25,900 with China receiving 3,400 MT, same amount as last week and despite the tariffs. Look for upside follow through.
LC futures managed to close higher on Wednesday after a sharp two-day selloff on Monday and Tuesday. Packers are taking the show list cattle off of the feed lot manager hands at lower money with trade established at $1.27. Many, if not most are eager to call a top in the market. I’m not subscribing. Many, perhaps, are either forgetting or don’t have the experience to know how long of a tail stressed cattle will have after this type of a winter. At some point in the next few weeks I suspect packers will have to chase to own inventory. This assumes strong demand moving to the market in the weeks ahead. New weight data comes out later today. Again, not sure when it starts but we’re expecting a full recovery and eventually a move back through the contract highs. Weekly beef export sales were sluggish at just 12,800 MT with shipments at 15,000.
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