LEAN HOGS:
Open interest edged higher by 672 cars yesterday. Cash is strong and I’m hearing from multiple sources that packers are concerned, big time, about not having enough hogs to meet their demand needs. There’s a story out by Reuters confirming that Chinese pigs have been rushed to market ahead of being diagnosed with ASF. The report confirms this behavior and reports that profits of the huge pork producer, New Hope plunged in the first quarter, down 93%. China has major problems with food insecurity. Weekly export sales were a negative 22,100 MT due to an error going back to last year. There was a cancellation of 54,476 MT by Mexico as this amount should have been reported in the 2020 calendar year. So, Mexico actually purchased 9,300 MT last week but the large cancellation turned everything negative. Guess what, China was the largest buyer of U.S. pork last week, purchasing 13,100 MT followed by Mexico, Japan, South Korea and the Philippines. Export shipments were huge, 43,900 MT, up 13% from the 4-week average and a marketing year high. Mexico received 13,800 MT last week followed by China (13,400). The U.S. pork export business is alive and well. If there is confusion in the early trade regarding the negative export sales report, recommend to buy May LH 110 calls. We continue to accumulate the Dec LH 88/100 call spreads as well. My upside target in June remains intact which is 120-125. Summer hogs are grossly undervalued.
LIVE CATTLE:
Beef export sales were smoking hot at 24,600 MT, up 38% from the 4-week average. Shipments were reported at 19,500 MT, up 4%. This certainly helps to explain the surge in wholesale beef prices. Explaining the soft/lower cash steer market is something I cannot do. Open interest dropped by 2,800 cars yesterday which must be viewed as slightly positive. Longs, rightly so, are simply giving up and exiting the board as we did on Monday. Other than spending a little money on some feeder calls, we’re sidelined right now, waiting for something positive to develop in LC futures. No new recommendations.
For a free 30-day trial to the evening livestock wire that includes this morning livestock report and a midday pork and beef update, send an email to: dennis.smith@archerfinancials.com
