Trading Advice For Hog Traders

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Trading Advice For Hog Traders
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The latest advice for hog traders from John Payne, Senior Futures & Options Broker with Daniels Trading in Chicago, from his newsletter The Swine Times.

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"It sounds like packers are rotating their weekend slaughter schedules in order to allow time for their employees to get the COVID-19 vaccine. Slaughter will be light relative to where the cutout is. We have to be cautious and wait to see if this 'backs up' many hogs. Weights are climbing a bit. Trust us when we say packers are not thrilled to be paying 90+ for hogs at this time of the year. They are going to use any excuse possible to slow things down a bit to make sure the margins don’t shrink. That's important to understand. China is on both sides of this trade as Smithfield is both exporter and producer of pork in the US. There are so few packers in the US that any one of them can affect the trade. The continued problems with ASF in China combined with the astonishing growth rates we should see over the next two years should keep the export demand high. Quite simply, the US markets are being leaned on to supply pork protein to a lot of the emerging market world."

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"The conversation on lower product prices has so far just been conversation. High prices should cure high prices. The only cut we saw lower this past week are the hams. Next week's weekly slaughter will be less than this week, and this should keep pork cut prices steady-to-steady firm."

"We look for bellies to turn lower as we get closer to the Easter holiday. It is still anyone's guess what belly prices do next week, but be cautious. We believe the hog futures are trading what fresh pork bellies do."

"The live weights did decrease slightly this this past week, coming in at 286.8. versus 287.1 the week prior and 286.7 last year. As you can see they are now just .1 over a year ago, and we believe this is an indication the producers are current on their marketings."

"Quarterly hogs and pigs report is released at the end of March. This could add plenty of fuel to the fire this summer."

Summer Hogs: How We Trade This

"Evidently, the hog backup we have been expecting has been offset by spec buying and exports. Margins are still green at these prices. The index roll is over. We may have seen lows in the J-M. We move aside."

"We recommend exiting bear spreads and actually going bull spread as we expect the near-term strength to push April while June hangs at 1.00, given the current tightness in immediate slaughter hogs and the fact that seasonally this is the time of year when hog numbers go down. We can see this because packers have to reduce their weekly kills."

"We like LHJ/LHM or LHQ. It is our opinion that this spread will work particularly well, if the product price rises."

"We will recommend the LHJ/LHQ spreads, and on breaks be a net buyer of June hogs. We have raised our sights (again), and would look to buy LHM under $94.00. In addition, to repeat last week’s longer-term outlook, the Chinese will most likely be in the market buying US pork through the end of the summer if not beyond. With that in mind, we believe that summer hogs will be a value as weekly slaughter numbers continue to go down. There is more industry slaughter capacity competing for fewer available hogs this year than ever before. Being long summer hogs is a way to take advantage of this dynamic."

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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