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Morning Livestock Report July 16

MINI S&P 500

We like the idea of picking a top in the stock market. Price action is very toppy. Consider the following option strategy.

Establish the Aug week 2 2900/2800 put spread for 8.00, or $400 in premium. These expire four weeks from tomorrow on Aug 14th. Maximum profit potential would be 100 points in the mini or $5,000. Maximum risk is the premium paid plus commissions. 


I expected a really strong and impressive weekly export report out of pork. Did not get it. The numbers are not bad but not scorching hot as I expected. Weekly pork exports were 38,500MT, up 16% from the 4-week average. Buying was solid and dominated by Mexico and China. Shipments fell off to 29,300 MT, down 8% from the 4-week average. China was the largest receiver of pork last week. Chinese pork production in the 2ndquarter dropped 4.7%. Pork production has been lower for seven consecutive quarters. Production for Jan-Jun was down 19%. Obviously, their talk of successful re-population was incorrect. Recent flooding has spread the ASF virus further. U.S. production this week will rise more than 10% yet we’re seeing a bottom formed in hams. Food service demand is still having problems so our conclusion is that exports continue to ramp up. We’re trading from the long side.


After touching a 4-year low recently, open interest is now pouring into the live cattle futures market. Open interest from yesterday’s rally was up 2,887. This is loads of fun if you’re a spec going along for the ride but for the short hedger, trying to manage risk, the fund money pouring in and the dramatic change in the basis is becoming a real pain. Aug LC has moved from about 20 cents under the cash to 6 cents over. The beef was stable yesterday with choice cutout hovering just above $200. Because our clients don’t like margin calls that can’t be explained, we’re pulling the plug on Aug hedges. We’re not hedge further out, thankfully.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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