By Dennis Smith | Grain PhD Ag Risk Specialist
Now the Administration is trying to tell China how to deal with the Hong Kong protests and linking a trade deal with this mess. Any kind of trade deal is way down the road. We’ll likely suffer through a recession and an election before a trade deal is hammered out. Regardless, expect China to be a huge buyer of U.S. pork in the months ahead. In fact, it’s my opinion at some point next year they’ll put a temporary lift of the ractopamine restriction. The positive news is that contrary to what the Chinese said two weeks ago about not buying any U.S. Ag commodities, the weekly export sales indicated the Chinese bought 10,000 MT of U.S. pork last week. They took half of all sales which were 20,400 MT and up 25% from the 4-week average. Pork shipments were even better at 26,400 MT, but down 3% from the 4-week average. China shipped 6,800 MT last week. Futures traded on light volume yesterday with open interest edging higher. The dramatic rise in wholesale beef is positive for the pork moving forward. Packers are already feeling better demand coming at them according to my sources. We’re waiting to see if key resistance levels get taken out this week.
Huge volume of trade occurred yesterday in both LC futures and in FC futures. Open interested jumped substantially in LC, rising by nearly 5,600 cars. Open interest in feeders is not changing despite the huge volatility. Both markets should be headed lower into the fourth quarter. The cash steer trade was established yesterday at $1.05 which is down $5 to $6 from last week. We are committed to adding to hedges in the feeders today and we’ll wait and watch for some further upside recovery before stepping into hedges in the Oct and Dec LC. The latest info I have on the Tyson plant is that it will be months and not weeks before that plant is running again. If I were Tyson I’d update and expand the plant’s capacity while I was at it. In the Oct LC, given a move upward into the gap, above 10100 and we’ll be actively recommending hedging. Packers won’t let up, they’ll continue to grind the cash steer market lower in this environment.
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