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Arbitrage Idea on Food CommoditiesCME: Lean Hog ( CME:HE1! ), Live Cattle ( CME:LE1! ) Here is the official narrative on US inflation: The Federal Reserve’s monetary tightening policy has successfully brought down inflation rate from a four-decade high to about 3 percent, delivering much needed reliefs to US consumers. Government data supports this narrative. Take food costs as an example: In August 2022, CPI on food items reached a record 11.4%, well above the peak headline CPI of 9.1%. Rising food costs were a leading inflation contributor. By April 2024, the headline CPI went down to 3.4%, while food CPI was even lower at 2.2%, according to the Bureau of Labor Statistics (BLS). Low food prices helped decelerate the overall inflation. Grocery shoppers and restaurant diners would likely disagree as they tend to experience much bigger price hikes. Let’s read the same data from a different angle. • The headline CPI (CPI-U) rose from 267.054 in April 2021 to 313.548 in April 2024. (Note: The BLS CPI data sets the years 1982-84 as a baseline at 100.) In other words, CPI-U has gone up 17.4% in the past three years. • For the same period, food CPI rose from 273.090 to 321.566, up 17.8% in 3 years. This data shows the whole picture. The cumulative effect of multi-year inflation has elevated prices to higher levels. Annualized rates of increase have indeed decelerated. But as long as they remain positive, price levels will continue to go up. A Deep Dive on Food Inflation The BLS categorizes food items into “Food at Home” and “Food away from Home”. This methodology would result in the same type of food showing up in two categories. The logic behind it is debatable. While it makes sense to observe and report sales prices from different venues, it makes the task of data analysis much more complicated. I propose a reclassification of food items into meat, grain, and beverage categories. Each has several commodities trading on the futures market, where its price-discovery function helps bring all relevant supply and demand information together. The Livestock/Meat Market Live Cattle ( NASDAQ:LE ) and Lean Hog ( NYSE:HE ) are commodities contracts trading on the Chicago Mercantile Exchange (CME) futures market. In the past five years, Live Cattle futures have gone up over 60%, well above the 27.4% in CPI-Food for the same period. Meanwhile, Lean Hog advanced less than 5%. Why beef price rose rapidly when pork price declined throughout most of the inflationary period? What’s reason behind the diverged price patterns between the two meat products? We will come back to this in the next section. The Grain Market Corn ( TSXV:ZC ), Soybean ( NASDAQ:ZS ) and Wheat ( SEED_MSTRWHYT_FUTURES_WASDE:ZW ) are commodities contracts trading on the Chicago Board of Trade (CBOT) futures market. The 5-year price changes for Corn, Soybean and Wheat are 28.9%, 51.3% and 55.1% respectively, all above the 27.4% in CPI-Food for the same period. We observed that grain prices peaked in 2022 after the Russia-Ukraine conflict started. Wheat prices doubled in a matter of weeks, as investors feared that production by the two major wheat exporters may be interrupted. More recently, grain prices were trending down in the past two years, a result of stable supply and weak global demand. The Beverage Ingredient Market The 5-year price changes for Cocoa, Coffee, Orange Juice, and Sugar are 252%, 196%, 63% and 29% respectively. The spike of Cocoa price by 400% caught market attention earlier. This was followed by a nosedive with price cut in half. Cocoa contract does not have adequate liquidity. Trader speculation was likely the main factor causing the dramatic price movement. Arbitrage Opportunity with Live Cattle and Lean Hog Futures In “What Disinflation - Beef Price Went Up 64% in 5 Years”, published on August 7, 2023, I introduced an arbitrage idea for shorting (selling) the cattle-hog price spread. The 20-year price chart shows that the spread between live cattle (LE) and lean hog (HE) broadly stays in the range of $20-$60 per 100 pounds. On August 4th, LEV3 settled at $183.10 while HEV3 closed at $83.25. The spread has widened to nearly $100, well above the historical average. On May 17th, Live Cattle August contract LEQ4 settled at $178.85, while Lean Hog August contract HEQ4 closed at $99.55. The spread has narrowed to $79.30, down $20. Futures market confirmed my view. In my opinion, the same fundamental factors are still at work and could drive the spread down further to the $60 range. 1. Price Sensitivity and Substitution o When beef price gets too high, its demands could be partially substituted by the lower-priced pork. Price sensitive consumers would choose pork chops over a steak dinner. The result would be lower beef price and higher pork price, as the demand for the former is redirected to the latter. 2. Mean Reversion o The price spread at $100 was two standard deviations above its historical mean. Statistically speaking, such an outliner is abnormal. There is a good likelihood that the spread would fall back to the $20-$60 normal range. 3. Hog Cycle o The multi-year Hog Production Cycle has major impact, with fewer sows yielding a smaller hog production in the next 12-18 months. Hog production reduction would result in higher pork prices down the supply chain. For a thorough understanding of the fundamentals in the beef cattle and lean hog markets, please read my previous writings, listed at the end of this post. To set up a short cattle-hog spread trade, one could sell one live cattle contract and simultaneously buy one lean hog contract. Each cattle contract has a notional value of 40,000 pounds, or $71,540 (= $178.85 x 400). To buy or sell one contract requires a margin of $2,450. Each hog contract has a notional value of 40,000 pounds, or $39,820 (= $99.55 x 400). To buy or sell one contract requires a margin of $1,500. The two-legged spread trade requires an upfront margin of $3,950. Hypothetically, if the cattle-hog spread narrows to $60 from $79, the $19 difference would translate into an account credit of $7,600 (= 19 x 400). Using the margin as a cost base, the theoretical return on this trade would be 192% (= 7600 / 3950). The trade would lose money if the price spread did not narrow. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:HE1!Long
by JimHuangChicago
1
Lean Hogs Due for Relief?Lean Hogs Technicals (June-M) June lean hog futures shipped back higher midmorning but retreated back near unchanged by the close. Trendline support continues to hold which bodes well for some relief to the upside from these levels. A break and close below yesterday's low of 102.175 would neutralize that bias. A close above 104.20 could trigger a move back to 105.45-106.00. This pocket represents previously important price points as well as the 50% retracement of the recent move. Resistance: 105.45-106.00*,109.175-109.65 Pivot: 103.00-103.50 Support: 102.175**, 101.00-101.50, 98.60-99.20 Seasonal Tendencies Below is a look at historical seasonality's for June lean hogs (updated each Monday) VS today's prices (black line). *Past performance is not necessarily indicative of futures results. Commitment of Traders Snapshot (updated on Mondays) Friday's Commitment of Traders report showed Funds were net buyers of roughly 19k contracts, expanding their net long position to 92,731 contracts. Looking back at historical holdings, this is nearing a record, that was set back in 2013 when funds were long 97,952 contracts. Check out CME Group real-time data plans available on TradingView here: www.tradingview.com Disclaimers: CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
CME:HEM2024
by Blue_Line_Futures
HE: Upside Potential on Pork Prices with New Hog Cycle UnderwayCME: Lean Hog ( CME:HE1! ) Throughout 2023, U.S. grocery shoppers find that beef prices rise rapidly. According to the National Daily Cattle and Beef report, published by the U.S. Department of Agriculture (USDA), Choice Beef averaged $290 per cwt (100 pounds) on December 8th. This represents a 16% increase year-over-year and is 21% above the 5-year average. In the futures market, CME Live Cattle ( NASDAQ:LE ) hit bottom at $85 per cwt in April 2020 during the pandemic lockdown period. Since then, cattle prices have trended up in a straight line to top $185 by this September, before pulling back recently in Q4. Beef prices have more than doubled, while the official reading of CPI for Food and Beverage went up by only 27% in the past five years. Fortunately, you could still find low-cost meats if you walk over to the Pork section. Based on the USDA National Daily Hog and Pork report, Hog Carcass averaged $60 per cwt last Friday. It is a whopping 29% discount comparing to the $85 price tag on the same day last year. Ham price averaged $84, which is $10 cheaper than the same period last year. In the futures market, CME Lean Hog ( NYSE:HE ) tends to move up and down in a cycle average 2-3 years. This phenomenon is referred to as “Hog Price Cycle” or “Hog Cycle” in agricultural economics. Pork prices do not appear to be impacted by the inflation. The Hog Cycle Hog cycles are the changes recurring in agriculture in the production and prices. A complete hog cycle includes successive years of increase and decrease in hog production cycle. In general, a higher level of hog inventory will result in pork supply surplus, and cause hog and pork prices to fall in future months. Lower hog stock leads to pork supply shortage and will cause prices to rise. There is a mismatch between hog production cycle and hog price cycle, because it takes time to produce hogs, from farrow to weaned pig, and from feeder pig to market pig. To complete a feedback loop, a producer first observes change in market prices, he then adjusts production level accordingly. It will be 5-6 months later before the change in hog output occurs. We could describe the sequence of events in the following: 1) As producers incur loss from low price, they liquidate sows and reduce hog inventories. 2) A lower level of hog production results in a shortage of pork supply (months later). 3) Pork price goes up as supply could not meet demand. 4) Higher hog price induces producers to raise hog inventory. 5) Higher hog production results in a surplus of pork supply (months later). 6) Hog price declines due to the oversupply of pork in the market. Sow Liquidation Could Lead to Lower Hog Supply in 2024 Iowa State University (ISU) is a leading authority in swine research. Based on the estimates put out by ISU Economics Department, a typical Farrow-to-Finish hog producer in the U.S. would have incurred losses in ten out of the last twelve months. As shown in the table below, a producer farrowed in September 2022 would pay $129.15 in feed cost and $71.90 in nonfeed cost per hog. When he sold the hog with an average weight of 270 pounds in April 2023, he would receive $148.83 and a manure credit of $8.50, resulting in a net loss of $49.47. These steep losses average $21 per month from November 2022 to October 2023. Hog farmers may be forced to liquidate sows this winter. It could result in lower hog inventory and lower pork supply in the coming months. In the 2023 September Quarterly Hogs and Pigs Report, the USDA estimated that U.S. inventory of all hogs and pigs was 74.3 million heads. This was up slightly YOY, and up 2% Q2, 2023. The new quarterly report will be released in two weeks. The updated data would help us validate whether sow liquidation has increased as we hypothesize. USMEF Export Data The U.S. Meat Export Federation (USMEF) recently posted export data for October. U.S. pork exports posted another strong performance, led by record-large shipments to Mexico and broad-based growth elsewhere. October beef exports remained well below last year’s large totals but improved from September. October pork exports totaled 245,345 metric tons (mt), up 3% YOY as the largest since June, valued at $688.2 million. For the first 10 months of 2023, pork exports increased 9% YOY to 2.38 million mt, with value up 6% to $6.66 billion. In my opinion, the sharp decline in hog prices increases the competitiveness of U.S. pork around the world, fueling the export boom. CFTC COT Report The U.S. futures market regulator CFTC publishes the Commitments of Traders (COT) reports and provides a breakdown of open interest for futures and options markets. What’s the key takeaway from the December 5th COT report on CME leaned hog? Weekly CFTC data showed the lean hog speculative traders were closing longs and adding shorts during the week that ended 12/5. That left the funds with a 3.4k contract stronger net short of 17,963. This may be a bearish signal. However, speculative traders may have incurred large losses on the long positions, and they simply took cover. Trading Opportunity with Lean Hog Futures To sum up the above analysis, I expect to see lower hog supply due to sow liquidation in the coming months. This will usher a new hog cycle. See step (1) in the 6-step hog cycle above. With a strong labor market and cooling inflation, particularly lower gasoline prices, we could see some improvement in consumer demand for pork. A strong export market reduces supply surplus in the domestic market, which also helps lift pork prices. The April 2024 lean hog futures (HEJ4) was settled at $74.625 last Friday. Each contract has a notional value of 40,000 pounds, or $29,850 at current price. To acquire 1 long or short position, a trader is required to deposit an initial margin of $1,500. The trader could see higher hog prices if sow liquidation speeds up, and the export market remains strong. A long position would profit from the rise in hog price. Each contract would gain $400 for every 1 penny of increase in hog price per pound. On the other hand, hog prices could stay low if the opposite happens. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CME:HE1!Long
by JimHuangChicago
Putting All Your Eggs in One BasketCME: Pork Cutout ( CME:PRK1! ), CBOT: Corn ( CBOT:ZC1! ), Soybean Meal ( CBOT:ZM1! ) Diversification is a fundamental concept in investing. In order to minimize the chances that market volatility wipes out your entire net worth, it is important to put your money in several investments with different levels of risk and potential return. This is summarized nicely in a single phrase – “Don’t put all your eggs in one basket”. In 2022, however, if you have followed this time-honored advice and allocated your money carefully across major assets, you would have lost money! Why did diversification fail this time? Let’s look at the annual return by major investment category: • Stock Market: S&P 500, -13.9%, Nasdaq 100, -25.5% • Bond Market: 2-Year T-Notes, +6.7%, 10-Year T Notes: -10.6% • Precious Metals: Gold, -6.9%, Silver, +8.8% • Currencies: US dollar index, +6.7%, Euro, -4.1%, British Pound: -9.9% • Energy: WTI crude oil, +1.2%, Henry Hub natural gas, -12.7% • Agricultural Commodities: Wheat, -1.9%, Corn, +11.3% • Cryptocurrencies: Bitcoin, -53.3%, ETH, -55.4% A diversified portfolio is not necessarily low risk. In time of distress, assets thought to have low correlation could all move in the same direction – going down. Last year, geopolitical crisis, high inflation and central bank tightening took turns driving financial markets lower. When a major crisis breaks out, all correlation goes to 1. This happened in 1998, when the Russian debt default took down Long Term Capital Management (LTCM), the largest hedge fund in the world. It repeated in 2007 and 2008, when the subprime crisis bankrupted Bear Stern and Lehman Brothers, the mighty Wall Street investment banks. It also wiped out the entire asset class in credit default swaps and exotic mortgage-backed securities. In this past year, troubles in one crypto Exchange, FTX, drove all cryptocurrencies down. Bitcoin, Ethereum and stablecoins all lost value by half, even though the decentralized nature of the crypto market design is supposed to prevent this from happening. The Soaring Egg Price Ironically, if you put all your eggs in one basket, figurately, your investment would have doubled! According to price data reported by the Bureau of Labor Statistics, Large Shell Eggs, Grade A, have average retail price at $4.25 per dozen across US cities at the end of December, up 112% for the year. A portfolio of shell eggs beats the return of all 15 assets listed above, by a wide margin! A new term, Eggflation , has been invented to capture this phenomenon. Americans in recent years have increased egg consumption while reducing intake of red meat in their diet, according to data from the U.S. Department of Agriculture. Interesting statistics : the total flock of egg-laying hens in the U.S. is around 320 million, almost matching the population of people. Each grown hen could lay as many as 320 eggs a year. And each of us eats about as many eggs as one hen can lay in a year. Egg consumption has grown in part because more families are eating them as their main protein diet. As demand for eggs has risen, chicken production in the U.S. has slumped as we are currently experiencing the most severe avian (bird) flu epidemic in the US history. Nearly 58 million chickens have been infected with bird flu as of January 6th, according to the USDA. Infected birds must be slaughtered, causing egg supplies to fall and egg prices to surge. So far, the total flock of egg-laying hens is down about 5% from its normal size, as farmers work hard to replace their flocks as soon as they can after an outbreak. On average, new-birth chicks take four months to grow into egg-laying hens. Egg prices are not likely to fall in coming months until decease-free hens are fully grown. While US CPI has cooled to 6.5% in December, inflation for food items is much higher at 10.4%. Eggs are just one of many food staples that skyrocketed in price in 2022. Margarine costs in December surged 44% from a year ago, while butter rose 31%, according to the CPI data. Egg Futures Contracts in the US and in China CME Group, the world’s largest Derivatives Exchange, traced its root to the Chicago Butter and Egg Board founded in 1898. Standardized egg futures contract started trading in 1919, as the Exchange reorganized as Chicago Mercantile Exchange. CME egg futures were actively traded for sixty years. As the egg industry consolidated and egg prices stabilized over the years, the contract was delisted in 1982. In November 2013, China’s Dalian Commodity Exchange launched its own Egg Futures. The contract is based on 5 metric tons of shell eggs. As a consultant, I assisted DCE in contract launch as well as ongoing support. On January 13th, daily trading volume of DCE egg futures was 98,893 lots, with open interest standing at 204,202 contracts. A Case for Intermarket Spread The huge surge in egg prices amplifies the market risks for egg industry. Without the price discovery function at the futures market, farmers would have a hard time projecting future price trend. They rely on cash market prices to make production decisions. It takes four months to grow chicks into egg-laying age. Each commercially-raised hen will lay eggs for 1-1/2 years before being slaughtered. For each flock, farmers face price risks for up to two years. The main feed ingredients, corn and soybean meal, could be hedged with CBOT futures contracts. But egg and chicken prices are exposed naked. Farmers are rapidly expanding their flocks as egg price skyrocketed. At some point, there will be too many chickens in the henhouse, causing egg price to crash. Maybe an egg futures contract could make a big difference. I think it is time to bring back the CME egg futures. Until then, you could consider intermarket spread if you want to participate in the market: Buy Pork Cutout (PRK) and Sell Corn (ZC) and Soybean Meal (ZM) futures. August PRK rose 14% from October and currently prices at 30% above the front February contract. • Like Hog Margins, this intermarket spread attempts to capture the profit margins in egg production. This is based on projected up trend in both pork and egg prices. A second intermarket spread is to Buy DCE Egg Futures (JD) and Sell CBOT Corn (ZC) and Soybean Meal (ZM) futures, if you could trade the Chinese futures market. Finally, you could buy shell eggs in cash market and store them in a cold storage. You would make money if future egg price surge could cover the storage cost. Happy trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
Editors' picks
CME:PRKQ2023Long
by JimHuangChicago
9
HogsHogs - Weekly Continuous: The gray vertical bars represent the expiration month of labeled contract and have prices of each contract as of today labeled. The deferred contracts can use the uptrend/downtrend lines to determine areas to be hedged. The June 21' high has provided a pivot for a down trend line that has acted as a strong area of resistance. Currently the May and June Contracts are near that downtrend line and could warrant some Price protection. Above look at the Red Uptrend line
CME:HE1!
by mtb1980
Daily Lean Hog Market Commentary Hogs Summary Daily Direct Hogs Plant Delivered (as of 1:30 PM CT) Carcass Base Price Range: 96.00-112.00 Weighted Average: 104.81 Change from Prior Day: -2.02 Head Count:8,165 CME Lean Hog Index 8/29/22: 109.36 8/26/22: 111.26 Daily Hog Slaughter 475,000. Down 5,000 from last week but unchanged from the same day last year. Technical Snapshot Lean Hogs October lean hog futures gave back gains from the previous day's session after failing to get out above the 50 and 100 day moving averages. The pullback was disappointing for the Bulls, but it didn't do much in terms of changing the technical landscape. We know that the gap from July 6th remains open with the spring lows coming in below that. We like leaning on the bullish side of things so long as those support levels can hold. We've mentioned the bullish seasonal play in recent reports, that is for the June contract, which fared much better in yesterday's session. Resistance: 98.05-98.25***,100.375-100.825***, 101.65** Pivot: 94.225-94.975 Support: 91.50**, 89.40-90.225***, 86.825-87.40**** Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
CME:HE1!
by OliverSloup_BlueLine
1
The Bullish Seasonal for Lean Hogs is Off to a Great StartHogs Summary Daily Direct Hogs Plant Delivered (as of 1:30 PM CT) Carcass Base Price Range: 100.00-120.00 Weighted Average: 106.83 Change from Prior Day: -2.52 Head Count: 7,286 Daily Hog Slaughter 4800,000. Unchanged from last week and 3,000 less than the same week last year. Technical Snapshot Lean Hogs Lean hogs have had a solid performance over the last two sessions, getting the bullish seasonal trade off to a good start (the seasonal is for the June contract, contact us for more information). The market got up to the 50 and 100 day moving averages but wasn't able to chew through that resistance band from 94.225-94.975. A breakout above that pocket could open the door for another leg higher, with the next resistance pocket coming in closer to 98.00. Resistance: 98.05-98.25***,100.375-100.825***, 101.65** Pivot: 94.225-94.975 Support: 91.50**, 89.40-90.225***, 86.825-87.40**** Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
CME:HE1!
by OliverSloup_BlueLine
Lean Hogs Claw Back Early LossesHogs Summary Daily Direct Hogs Plant Delivered Carcass Base Price Range: 114.50-126.00 Weighted Average: 115.61 Change from Prior Day: -8.08 Head Count: 3,203 Daily Hog Slaughter 428,000. Down 30,000 from last week and 47,000 from last year. Technical Snapshot Lean Hogs October lean hogs opened lower on concerns of slowing Chinese growth, but managed to claw back losses, finishing the session in positive territory and smack dab in the middle of our pivot pocket. In yesterday’s report we defined our pivot pocket as 100.375-100.825. A breakout and close above or a breakdown and close below could spark a bigger directional move. With prices so close to contract highs, there are fewer defined levels of resistance. Resistance: 101.65** Pivot: 100.375-100.825 Support: 98.05-98.25***, 96.775-97.525***, 94.30-95.30*** Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
CME:HE1!
by OliverSloup_BlueLine
1
Are Lean Hogs Out of Gas? Lean Hogs Daily Direct Hogs Plant Delivered (as of 1:30 PM CT) Carcass Base Price Range: 114.00-136.00 Weighted Average: 123.69 Change from Prior Day: 2.32 Head Count: 6,089 Daily Hog Slaughter 440,000. Down 12,000 from last week and 24,000 from last year. Commitments of Traders Update Friday’s Commitments of Traders report showed that Managed Money were net buyers of 8,402 futures/options contracts through August 9th. This expands their net long position to 65,153 contracts Technical Snapshot October lean hogs made new contract highs on Thursday, but it really lacked conviction. The lack of conviction helped spark some moderate profit taking on Friday. Bearish news from China has put some weakness into the outside markets, this may spill into hogs to start the week. If the market does experience weakness, a retracement to last week’s breakout point would be the first downside objective, Resistance: 101.65** Pivot: 100.375-100.825 Support: 98.05-98.25***, 96.775-97.525***, 94.30-95.30*** Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
CME:HE1!
by OliverSloup_BlueLine
Will lean hog catch up?The commodities market is a close-knit one, with the price hike in one commodity often affecting another. Such correlation is evident in agricultural products such as soybean meals, corn, and lean hogs. Lean hog prices are highly correlated with Soybean Meal and Corn as young feeder pigs are fed a diet of roughly 70% corn and 30% soybean meal. As such when corn and soybean prices rise, lean hog prices often follow suit. As spelt out in some of our previous ideas , we think agricultural commodities are due for a rally amid the backdrop of supply chain constraints arising from the Russian-Ukraine crisis, and high fertilizer costs (due to surging natural gas prices) which in turn feed into crop planting cost. Over the past 3 weeks, most agricultural products staged a rebound with Soybean Meal and Corn getting in on the action as well. The rally resulted in Corn prices up 15% and Soybean Meal prices up 10% from 3 weeks ago while lean hog prices lagged, moving only 4.4%. Thus, we think that lean hog prices have room for more upside. Looking at the chart of HEZ2022, we see the lean hog December 2022 futures breaking out of the range established from the start of the year and coming back to retest the range-high. We see this as support for lean hog prices to break up. Should agricultural commodities continue their rally, higher feed cost would be translated into high lean hog prices. Spread Entry at 90.250, stops at 87.850. Targets at 95. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Reference: www.cmegroup.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios.
Editors' picks
CME:HEZ2022Long
by inspirante
5
Lean Hog Commodity USASun Storm Investment Trading Desk & NexGen Wealth Management Service Present's: SSITD & NexGen Portfolio of the Week Series Focus: Worldwide By Sun Storm Investment Research & NexGen Wealth Management Service A Profit & Solutions Strategy & Research Trading | Investment | Stocks | ETF | Mutual Funds | Crypto | Bonds | Options | Dividend | Futures | USA | Canada | UK | Germany | France | Italy | Rest of Europe | Mexico | India Disclaimer: Sun Storm Investment and NexGen are not registered financial advisors, so please do your own research before trading & investing anything. This is information is for only research purposes not for actual trading & investing decision. #debadipb #profitsolutions
CME:HE1!
by Sunstorminvest
Lean Hogs Reach Uncharted Territory Hogs Daily Direct Hogs Plant Delivered (as of 1:30 PM CT) Carcass Base Price Range: 115.00-138.00 Weighted Average: 132.48 Change from Prior Day: 1.35 Head Count: 25,266 Daily Hog Slaughter 474,000. 5,000 more than last week and unchanged from last year. Weekly Export Sales Pork: Net sales of 21,500 MT for 2022 were down 31 percent from the previous week and 6 percent from the prior 4-week average. Technical Snapshot October lean hogs stuck their head out above the March highs as the market continues to stage a counter seasonal rally. Fundamentals remain strong and the chart looks good. With the market in uncharted territory, finding the next meaningful resistance point is a lot like a game of pin the tail on the donkey. The RSI is approaching overbought with a reading of 68. Typically, anything over 70 is considered overbought. Keep in mind though that we did see the RSI get to 84 back in February. So, a high RSI is not a good enough reason to short the market. Resistance: ??? Pivot: 100.375-100.825 Support: 97.525-97.85***, 94.30-95.30*** Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
CME:HE1!
by OliverSloup_BlueLine