Futures traded mixed Monday, lower in the morning but up by the afternoon. The likely reason was more of a gap-filling move on the December than any real change in fundamentals. The December exactly filled the upside gap to 57.75. The type of day, with a lower low than the previous session but also a higher high, is called an Outside Day. The close higher implies slightly higher trade tomorrow morning.
Over the years as we have covered various sectors — from energies to stocks and stock indexes to fixed income to forex; and different asset classes from futures to equities to exchanges traded funds — trading has grown more complex.
The October contract has risen 5.25 off their lows from the 1st. This is not that unusual. As noted all last week, the market often does not like to the August expire and the next contract out hold such a steep discount to current cash prices. We can argue all we want that this discount is needed, and may, in fact, be too small based on the supply change coming, but that does not matter. From a simple optics perspective, a $20 discount is too much.
Another 20 cent gain was added to wholesale pork today. That extends this year's strong rally just a little further. More important for these short term discussions, it temporarily puts away fears that the top is in. We, and most of the pork trade, certainly do feel this is the right time. The only question is when.
New highs were reached for the July and August lean hog futures on Monday. The trade is still discussing the idea of slackened demand from end users for beef at these higher prices and a little more interest in pork. As we noted a few weeks ago, there is not as much switching between the two than analysts thought years ago but there is something there. It has also been shown in the weekly feature numbers.
New highs for this uptrend were seen for the July and the August hogs on Monday. The July is currently the dominant contract due to the higher open interest numbers. rallying 23% since the start of the year for choice.
The dominant April live cattle futures contract closed down 2.95, just a nickel off limit down. The market really took Friday's Cattle on Feed report to heart. It was interesting to see that cattle broke to near limit down while hogs did just fine today. We just added a few extra cattle into the summer timeframe to compete directly against pork.
We are not suggesting the market has fully ignored Friday's bearish Hogs and Pigs report. It is likely more that with holiday trade this week we saw those new bears from the couple of weeks take a little quick profit.