In Live Cattle the Cart is Ahead of the Horse

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Tuesday March 20, 2018

LEAN HOGS:

The obvious is that hog futures (and cattle futures) are worried about Trump picking a trade war with China. The not so obvious is what happens next. Our approach, accumulating calls, is certainly not profitable but its performing a lot better than being long futures. Given the dynamics of a pounding strong U.S. economy and continued strong outlook for pork exports, were expecting a bottom, a major low soon. U.S. pork exports to China/Hong Kong have been in decline, down 18% last year. The growth in pork exports has been in Central America with continued strong exports to Japan, Mexico and Canada. Thus, the market is likely grossly overdoing the China fear factor.

LIVE CATTLE:

Fund liquidation appeared to be the central theme in the LC yesterday. Open interest dropped by 4,400 cars in the April with an increase in all other contracts. Total open interest declined by only 1,700 cars. Theres much more to the selling than funds liquidating length. Having said that, well be working orders to cover short calls on our hedged positions and even looking to cover a portion of short futures on another round of selling pressure. It appears the cart is well ahead of the horse at this time. A bounce, a hard bounce is likely.

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