The Week Ahead
The USDA Interior weights increased by .4 lbs. mostly because of one less slaughter day due to the Thanksgiving holiday.
We will call the retail cuts loins, Boston butts and ribs steady lower next week as supply backups are rumored.
The belly price probably bottomed last week, but upside is probably limited in the very short term.
Hams are on the defensive temporarily, but we look for them to bounce back after this correction in price. We think it will take export interest to do it.
Overall, we believe the entire pork cutout is bottoming, but upside is limited this week in our opinion. If history is a guide (which it sometimes isn’t), the index has more downside to go.
Selling February toward the middle of the monthly distribution channel is a good low-risk, high-reward trade. Sell it around the close on Friday. Tight stops above 82.50 is one way to play it, but whipsaw risk is high. If you want to use a looser stop, or stop on close, go above the high from two weeks ago. We feel it will take something extraordinary to get prices above that level before the Pig Crop report in a few weeks.
There are two, three-day weekend holidays coming up. Christmas and New Year's falling on Saturday this year will, by default, back up hogs. Hogs that are already carrying too much weight, which is just adding more excess pork for the major packers' sales desk to try and clear. This will also be more of a challenge than usual because of the short week, coupled with the fact that several major processors and retailers will be running limited schedules.
We like using the February leg as the short leg of the LHJ/LHG bear spread, simply because it is our opinion that the February hogs have to big a premium built in for this time of year.