Cash Steer Prices Expected to Jump Higher
By Dennis Smith
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Tuesday April 6, 2021
LEAN HOGS:
Cash will be called higher for today as packers get back to business after a long holiday disruption. I anticipate all packers to be in the market to finish out numbers for this week. The product is expected to remain well supported due to declining numbers and strong, very strong demand. Summer hogs put in near term highs yesterday off active hedge selling pressure. The selling won’t last long in the face of bullish fundamentals. The one-day index is calculated at 100.58. April futures, at only 190 over, should be well supported today. My upside target in the April resides at 110-112. My upside target in the June is 120-125. Some traders I converse with are expecting a move into the upper 130’s. A new ASF outbreak was reported in China. They have major problems. U.S. futures are grossly undervalued relative to the product value ($109.29). For today, I’m recommending a bull call spread in the Dec hogs.
- Buy Dec LH 88 calls/sell 100 calls at 200 points. ($800 total risk vs a $4,800 potential profit)
LIVE CATTLE:
It was an impressive technical performance yesterday with fresh contract highs across the board in LC futures with the exception of the soon to expire April. There were 45 deliveries posted against Apr LC with the oldest long at July 28th. We rolled long positions into the June yesterday. Look for June to out-perform the April again today. We own a host of Oct LC 140 calls from way back last fall. We paid 30 to 40 points for these options. If/when Oct futures trade to 13000, I want to exit all of these calls, taking the handsome profits. Otherwise, at this moment, I have no new trade ideas. The cash steer market should trade higher this week and possibly sharply higher. Don’t rule out a trade in the live market as high as $1.25 later this week. The meat trade could easily be $195. I’m expecting a firm to higher open followed by a higher close fueled by another round of higher choice beef and prospects for a strong cash steer trade.
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