Today, Thursday, the quarterly Pigs and Hogs report will be released.
For many years, this report was known for causing large moves of the hog prices. Recently these reports conformed well with the estimates of the traders, and, thus, price moves were moderate. But you never know ...
Bst regards, Myrrdin
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The report was neutral compared to trade expectations. Good news for traders holding short options. Option prices should move downwards due to reduced volatility.
Best regards, Myrrdin
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In case you hold positions in the cattle market please be aware that on Friday, 21st of July, after the close the monthly Cattle on Feed Report and the semi-annual Cattle Report willl be published.
Best regards, Myrrdin
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The CoF report was clearly negative regarding marketiings as well as placements. Fundamental data still suggests that we will see cash price at approx. $120 at expiry of August and October futures. It will be interesting to see if there is damage made to the charts, that will bring prices down below 111 in the short run.
Best regards, Myrrdin
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Bear spreads in the hog market are doing well this year, as suggested by seasonal charts.
I hold the LHG8-LHV7 and the LHJ-LHZ for a while.
The first one should move upwards now according to seasonals, but I expect cash price coming further down, and the bear spread moving further upwards. (This spread also serves as a hedge for my LHG puts.)
The second one should move upwards according to seasonals until November.
Best regards, Myrrdin
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I currently do not see any interesting trades in the meats with the exception of selling options (see thread "Diversified Option Selling Portfolio").
.
Best regards, Myrrdin
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The Daily Livestock Report provides a one-page summary of news, prices, fundamental indicators, and trading activity on CME's Livestock Complex. Daily illustrations of supply and demand factors help you learn to track the markets and anticipate price trends. (The report is an Adobe PDF file and requires Adobe Acrobat Reader® to preview. The report is best viewed using Adobe Reader 4.0 or higher).
Signup it's free and arrives in your mailbox every day.
They also mentioned the following "free" KSU monthly report
Focus on Feedlots was created in 1990 at Kansas State University to provide basic feedlot performance data for steers and heifers, and feed ingredient prices. Each month, closeout data from various Kansas feedlots are summarized to provide average values for days on feed, average daily gain, harvest weight, dry matter feed conversion, cost of gain, and death loss, as well as corn and alfalfa hay prices. The Monthly Reports are available as Adobe PDF files. An Excel spreadsheet of the data is available upon request. Links to individual tables of each year's data (Yearly Data tables), charts for the four most recent years (Yearly Charts), and charts for three-year averages since 1990 (Three-year Average Charts) are located on this web page.
I did check and can't see that these sources haven't been mentioned anywhere in this thread yet. I can't claim credit though because I'm sure somebody else at futures.io told me about it. (Maybe @myrrdin in his diversified options thread.)
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I do not like trading the May and July contracts in the hogs, as they are extremely thinly traded. Sometimes - for this reason - they show strange moves.
Best regards, Myrrdin
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The Dec hogs have an open interest of around 53,000, so no problems there, but the May '19 are definitely on the thin side
with OI of just over 200. However, I had no problems getting filled, and in fact, I remember I got a good price. I like the
trade cos it's been profitable for the last 9 years out of 10. The 'Worst' and 'Best' loss/profit figures looked OK, and the
margin requirement was around $900/contract. In fact, the trade is near to my closing point - opened at -17, and will
close at -22, giving $2,000 profit per contract (currently around -21).
I still assume that you sold the HEZ and bought the HEK. Bear spreads in the Hogs work well at this time of the year, if there is no desease etc.
Be careful: Today there came the news that in china a desease has broken out among hogs. This was the reason for prices moving upwards today. In the short run, this could hurt our bear spreads.
And: In case Mr. trump and Mexico sign a trade agreement, this would also be favourable for the hog prices and could hurt our spreads.
Best regards, Myrrdin
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I'm looking to put on a long position in hogs and wanted to solicit your feedback. I have been looking at the COT report and saw that commercials have one of the largest long position in the history of COT reports at +37.3k contracts. Conversely, large specs. are at their 2nd lowest level at -26.5k contracts.
History shows, that similar COT positions have led to higher prices for hogs but given the current geo-political climate, is this time different? As you mention, given the hint of thaws in some of the adverse trade actions (see the outline EU trade deal announced late last month) could something change on the US-Mexico front that would re-open the market for US producers?
Granted, I didn't do my COT research based on % of OI, just aggregate levels and OI has jumped markedly as of late so that could color the analysis differently.
What do you think?
Ref: tradingster.com/cot/legacy-futures/054642
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I currently hold a long position in LHG9. Reasons are COT data, the consideration, that Mexico will import again within the next few months (additionally this problem is probably already priced in), and the fact that I consider the price of the February future as cheap compared to the cash price I expect in February. I hold outright futures and the LHG P50.
Additionally I hold the LHG-LHV spread for seasonal reasons.
Whereas I bought the long LHG9 position recently I would not buy the LHG9 - LHV spread at current prices.
Best regards, Myrrdin
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I wasn't in this, and I see it has moved up very nicely.
You may recall, I posted this "Last month, I opened the HEZ18-HEK19 after I saw it on seasonalgo. Opened at around -17, and currently in profit." on 03-Aug. I've closed this last week at -22. I really like this trade. It went very smoothly and as
per plan. If this spread goes back up to around -18 I may re-enter.
I'm also holding the LEV18-LEZ18 but this is not doing anything much right now.
This time of the year often is the time of the bear spreads in hogs. Currently I hold the LHG-LHZ.
Additionally I hold various short call options in the meats (see thread "Diversified Option Selling Portfolio") and a long position of LHM9, as I expect a large amount of hog imports by China in 2019 (severe desease problems).
I am assessing the possibilities for lean hogs August contract LEQ19 (particularly shorting) as I consider that prices are relatively elevated currently. Any other consideration to consider?
I am sure you have read about the severe problems regarding hogs in China.
In case there is a deal between the US and China, the price of HEQ might go through the roof. The HEQ contract was above 130 in 2014, when another desease plagued hogs in the US. There are clever people calculating a maximum price, but if there is panic you never know ... I do not intend to sell HE futures in the near future. The time will come when a deal between the US and China has been made.
I am long hogs via the HEV-LEV spread. In my opinion, live cattle are overpriced, and the effect of a deal will be much larger for HE than for LE. In case there is no deal or the deal is postponed too far out, the price of LE will come down further together with the price for HE. Thus, the risk of the spread to me seems to be smaller than for outrights.
I am also thinking about buying a small lot of HEG20 futures, which currently are about 82. I hope for a set-back to enter this trade.
Best regards, Myrrdin
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Time to come back on this topic. OK there was 31.4MMT of lean hogs bought by China this week but the real question for me (I am short call option at 114 HEQ19 and it has already lost more than 70% of the value) is by when the price will go up and if...
My assumption, as we previously discussed. was that August expiry date will be fine with this level (and I was even ready to double it for 120 if needed be...). I am monitoring and ready to buy back my short call if things are not turning well for me.... Not sure that I will take another short call option for the end of the year though...
These articles are summarizing well (my previous views) the fact that timing is key and the level of price to be reached is also key even if one is bullish...which is still not my case....I am neutral at the current level around 90 - 95 https://www.porkbusiness.com/article/chinas-love-pork-may-not-be-enough https://www.porkbusiness.com/article/swept-under-rug-5-factors-influencing-hog-prices
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The only outright or short option position I hold in the meats is the short HEM P88, which I sold ITM at approx. 3.5. Thus, it will make money if the future ends above 84.5 .
I did not buy the HEG futures I talked about in another post. The risk is extremely high. Eg. there might be a message about the desease having moved to the US during the weekend - and HEG prices might move limit down for some days ...
Best regards, Myrrdin
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I do not hold any long or short outright positions in the hogs market. The reason is the significant risk of large upwards or downwards moves, depending on the discussions between the US and China.
The only position I bought recently is a +LHV -2*LHZ +LHG spread. i consider the December contract as significantly overvalued compared to the October and February contracts.
Profit potential looks good - my target is between US$ 8 and 9.
Best regards, Myrrdin
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Thanks for the information. Could you please elaborate on the whys?
I know you do not trade on fundamentals but no way for me to sell an option expiring in 4 months or more just based on Technical Analysis.
I was watching while home training on a TT bike BNNBloomberg (focusing on Canada) replays videos on commodities from Friday and I noticed that there are concerns for the Canadian farmers due to apparently some restriction on beef imports from China. Is it something in that direction (because I could almost say that on the contrary if it is about that it could be bearish)? Or is it something in the direction of substitution for Chinese Hogs due to ASFV (African Swine Fever Virus)?
Is it seasonality?
I am asking because Live Cattle is not anymore on my priority list. I follow Lean Hogs and I am assessing when to enter and in which direction with selling options...By the way talking about substitution poultry prices have increased a lot and consumption as well in China. So one needs to be careful for the right timing for entering Lean Hogs market.
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Regarding meats, I get this fundamentals from a paid newsletter. Thus, I do not want to go into details.
One argument for being long Live Cattle is the expectation of rising cash price in the near future. Another argument for being long the February contract is the expectation that from Q4 2019 to Q1 2002 the supply of Live Cattle will get very tight. And my third argument is, as mentioned by you rising exports to China. The only strong potential negative influence I can see for the next couple of weeks is that stock indices might come down significantly.
Regarding the hog market, I intend to buy outright futures or sell puts for 2020 contracts if they come down to the July lows. Main fundamental argument is buying from China.
Best regards, Myrrdin
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On Mon, 05-Aug, I sold the LEV19-HEM20 meat spread for around 27. It's a seasonal which has a very good track record, being profitable for the last 10 years, and I traded it successfully a year ago. The margin requirement is high though.
At present the trade is showing a 5 point profit.
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Have you considered starting a journal? I would love to see your trades on regular bases. I know spreads are not a daily thing, but it would be nice to watch/follow with a journal.
Sure, the ASF virus is influential in any hog trade. And there are so many fundamental factors at play (trade war, oil price, yaun devaluation etc) and my ability to make sense of them enough to come up with a creative trade idea is limited. So, I entered this trade based on previous history, and my own success with it. It's already pretty close to my target profit, so I may exit within a few days.
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I am surprized you chose the June contract for the short hogs leg. In case there is a solution for the conflict China / USA the price of this future will explode. I would prefer the October 19 contract, as even in case there is a solution for this conflict during the next couple of weeks there will not move many hogs to China until October.
Generally I currently do not like to trade hog contracts for 2020.
Best regards, Myrrdin
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Thanks a lot for your interest. I thought about it, but until now I decided not to start.
The reason is that I trade many different things:
Commodity futures, options, future spreads, option spreads, stocks.
Seasonals, COT, supply & demand for futures and options.
Many future markets.
Three different systems for stock trading.
The only thing that is common for all of my trades is that my minimum target to hold a position is a month, and I prefer holding my positions for approx. 3 months or longer.
My time does not allow for writing a journal for all I do in trading. Thus I would have to choose a segment of my activities. Which again is difficult as the various segments interact with each other, as I often use one segment as a hedge for another one.
I did not find a good solution yet. But I will think about it during my vacations in Italy, which will begin soon.
Are there any current journals you are interested in ? I would like to have a look at them and see if I could learn something.
Best regards, Myrrdin
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Hi Myrrdin,
Thank you for your reply. I still think its doable even with the nature of your trades. In my journal I tend to post day trades most of the time, but will take on a spread on futures as well as other instruments. I have an experimental Forex spread ( not doing very well!), that I am holding for three weeks. What you can do, if I may suggest, is take a snap shot for the trade at the open and as you hedge, roll, etc.., you can "quote" that same post in a new one. And later post updates on where the position stand in profit/loss. A picture is worth a 1000 word, right? You can even do YT videos for detailed explanation. I know its lots of work, but very useful and worth the effort. Also, as you grow as a trader, it can be used as a verified public record ( posts cannot be edited after 24 hours) for trading jobs or investors. I have also received very valuable feedback on my journal from very good traders. Last but not least, it has helped me stay disciplined and follow a plan.
There are many very good journals in here, each have their own style. Here is the link to all:
There is also another in the Elite section.
Again, thank you and good luck with your trades. You seem to have a good plan. Let me know if you have additional questions.
K
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LEV19 fell sharply this morning, and this combined with the HEM20 rising last week, meant that I closed my trade just now for 17.3 (for roughly a 10 point profit).
I really like this seasonal.
I'm now considering taking a similar action to Myrrdins, which is to go long LE. (From a purely technical POV, the underlying is now down to the lows seen in June, hitting the lower bollinger band, and the RSI is around 20.)
Edit: how are traders dealing with the low options volume and extremely wide spreads in LE contracts? I'm looking at Oct, Dec, and Feb expiries, and there isn't even an Ask price quoted for most of the puts.
The limit down move had nothing to do with seasonals. The reason was that Tyson’s slaughter plant in Finney County, Kansas, burnt down. It is the second largest such company in the US, processing approx. 5 % (I hope I remember this figure correctly) of US production. It looks like the shut down of the company will be longterm.
Spreads usually are no problem in the meat markets. Generally, if a commodity is limit up or down spreads are extremely wide. I would not buy or sell options at this time.
Best regards, Myrrdin
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1) How did you know about this fire? There is no mention in Hightower report and nor on the commodities news section of Barchart.com. It's mentioned in https://www.drovers.com/news though - do you follow sites like this?
2) With the plant closing down, would that not cause the LE prices to go UP, as the demand is the same as before, but the supply has been reduced?
I read about it yesterday in the weekly publication by Kevin Bost. He makes quite good forecasts on Cattle and Hogs cash prices. You have to pay for the journal. Details see his homepage.
The LE price refers to the animal, not to the meat. If less animals can be processed the price goes down.
Best regards, Myrrdin
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I was interesting to note that Hightower die not (!) report about this fire in their Monday edition. Looks like they write it at the end of the week and publish it on Monday, without checking.
Yes, in my opinion the 2020 contracts for Live Cattle are overdone. I intend to stay in my short LCG put spreads for the time being.
1. I received information that not the entire plant of Tyson Foods was destroyed, but only part of it.
2. Currently beef packers are enjoying extremely good margins, and, thus, there is a strong incentive to produce as much meat as possible. Other producers will find ways to raise their capacities.
Thus, I think price for Live Cattle will move up again for the 2020 contracts. But they might not reacch the level of last week in the near future.
Best regards, Myrrdin
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From what I have been reading, the number of cattle slaughtered this week isn't too much lower than what were slaughtered last week, so the reaction to the Tyson fire seems to have been overdone.
With this is mind, I went long the LEG20 contract today.
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I wish I did. I read it in the Hightower report. They mentioned figures for the first 3 days of this week, and compared them to the same period last week.
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Yes, I agree with this. It's not just hogs, but the equities also seem to be under the magic spell of a Trump tweet. The last 2-3 weeks have a been a roller-coaster for me as I trade a lot of SPX. Wide daily moves are now common place. It rose 80 points between Wed/Thur this week, causing me a lot of damage. One the one hand, I want to be careful of the Trump/China trade war, and on the other, no one really know how long this trade war will go on - it's been like this for around a year, and there seems to be no end-date. On a bigger picture, the US elections next year will be on the minds of both Trump and China, and I'm sure both parties will want to look like they have 'won' the war as the election fever is building up. This cat-and-mouse game could go on for a long while.
Meanwhile, I need to build up more trading experiences in commodities so am doing my trades on a small scale.
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Meats are difficult to trade currently because of the uncertainties regarding purchases of the Chinese. In my opinion, downwards moves are overdone now. Thus, I entered the following positions:
-LH P62,
LCJ-LCM,
LCQ.
I suggest to keep position size very limited.
Best regards, Myrrdin
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The Live Cattle prices are extremely low compared to my expections. I have no idea about the June contract. But it seems to be rather certain that in fall production will be on stream again without severe problems caused by the virus, and that restaurants have re-opened. And, thus, that the price of Live Cattle (December future) will be somewhere around 115 - 120 USD.
Best regards, Myrrdin
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I saw something on Twitter that was saying they are killing/euthanizing Cattle & Pigs to save on the feed cost the market is so over supplied currently
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Correct, I agree. But according to my knowledge this killing is done primarily for pigs.
The oversupply is the reason that I bought the December contract. At this tiime of the year, the virus problem should be solved. Production should be back on stream, and restaurants should be open again.
Best regards, Myrrdin
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I still hold long positions in the meats, currently the LCV, LCZ, and the LHG.
Restaurants are opening again, and, thus, meat consumation will grow again.
Americans seem to love meat, and, thus, there will be pressure for the processors to raise their output. This pressure comes from the market - price for meet is extremely high - and from politicians, eg. Mr. Trump.
I do not like to trade the M, N, and Q contracts, as the closure of a processing factory would change a lot.
Best regards, Myrrdin
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Made me laugh. But just as a point of comparison, here the locals don't eat much meat. They mostly eat fish and rice. A gringo that moved here 60 years ago and married an Ecuadorian owns the best butcher shop in Manta, and he is the only place I can get good meats. He has his own cattle.
Point being, different cultures can really make a huge difference.
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You live off the land. Americans have converted their land into livestock more than any other nation. Why do the English eat so much lamb and so little beef? Because the sheep live on the sides of mountains but cattle don't! I know you know this but TexMex is huge in Texas. Why is it called TexMex rather than Mexican food? Because TexMex is based around the meat, where as real Mexican food isn't!
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According to Wikipedia, the meat consumption per capita in the US was 120.2 kg / year compared to 88.1 kg / year in Germany. Figures are form 2009, I did not find more recent ones.
But in my opinion, both figures are too high.
Best regards, Myrrdin
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I have been asked about educational materials regarding meats.
I get a lot of information from the daily Hightower Report. They write a lot about supply and demand, discuss various reports, talk about COT data and show important developments regarding weather on a daily basis.
Additionally, I am a customer of Kevin Bost of Procurement Strategies, who gives good information on the development of cash prices.
Best regards, Myrrdin
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Lean Hogs Spread:- Buy Aug21- Sell Jun21.
Anyone else considering entering this trade soon? The seasonal period according to MRCI is 4 Feb to 11 Apr.
The closing price yesterday at 0.475 seems like a good entry level.
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I do not intend to enter this spread, as I already hold a number of positions in the meat markets.
On the one hand, it did follow the seasonal chart nicely in recent months. In my opinion, this is an important condition for successful seasonal trades.
On the other hand, I assume the Q contract to be more overvalued than the M contract currently. Thus, I think the profit potential of the trade will be limited this year.
Good luck !
Best regards, Myrrdin
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