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Tuesday November 14, 2017
Cash was lower yesterday and Id expect another round of weakness today. I noticed the lower cash on Monday was also accompanied with very active hog receipts. This weeks kill should challenge 2.5 million pigs. The cutout backed off by .53 which is certainly no big deal. Packer margins actually improved into new recent highs for the 4th quarter. Futures are expected to continue their grind lower and away from the contract highs of a couple of weeks ago. Dec closed just below their 40-day moving average yesterday. Eventually look for Feb to do the same. It will be interesting to watch the Dec/Feb spread over the next couple of days. Im expecting the spread to bottom. The summer contracts are hanging out at their contract highs. Producers, if youve already got some hedges on the book (in the summer hogs), consider adding to these using a put/call combo to establish a very attractive marketing window. Look for a two-sided trade likely followed with a lower close.
Live cattle traded lower yesterday during most of the session. During midsession the board did recover and trade higher but the higher levels could not/did not hold. The surge higher in open interest continued with total LC open interest rising by 5,400 cars. Evidently the trend following funds continue to buy and the hedgers continue to sell. The choice cutout was down $1.01 with the select down .68. The select beef has lost $4.00 in two days. Beef demand has been outstanding as confirmed by Tyson Foods yesterday. However, this is not the time of year to be expecting strong beef demand. Once the packers, after overbooking choice product, get enough choice around them, look for a lower trend in the wholesale beef complex. The fact is, reduced grading will cause the packer to break the cash steer market, not bid it higher. Technically the evidence is clear that futures topped last week. Last week Dec opened on the high and closed on the low. Two items stand out from yesterday. The trade is anticipating another round of active placements on the upcoming cattle-on-feed report and feeder prices appear to be weakening on a combination of slightly lower demand and large supplies of calves.
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