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Current Marketing Thoughts

RSS By: Kevin Van Trump,

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

Don't Get Fooled Like I Did

Feb 02, 2011

 Here's one story from today's report that I had written in response to a couple of customers' questions about this coming storm.  Hope it helps!

I remember when I first started trading and a massive winter storm was set to rip through the mid-west, I let a fellow trader talk me into getting long the hog market.  He justified the move by explaining that the packers would be without the necessary hogs because the producers would be unwilling to load and transport them to slaughter.  This would force the packer to bid up the cash in order to meet production needs and to entice the producer to bring them in.  Sounded feasible to me...Wrong!  After a limit-up open the market proceeded to head straight south closing limit-down for three straight days, and leaving me to wonder where it all went wrong.  My friend's philosophy was good in theory, but what I have found more times than not is that the supply chain gets backed up and the hogs get heavier.  Yes supply is kept out of slaughter, but demand also stops.  Just as the producers don't wan't to get out to transport the hog's to slaughter, the mom's don't want to go to the grocery store to buy ham's.  Once the Mom's do get back out, I doubt they will be buying two or three ham's all at once to make up for what they missed out on.  With this said, demand will not grow at all while supplies will build as the hogs sit inside the heated stalls eating more and more feed.  Once the hogs finally make it to slaughter packers will be hit hard and flooded with heavy weight hogs all at once.  The cash bids will weaken and generally leave us working through heavy supplies.  Maybe in the right situation at the right time his plan would have worked, unfortunately for me it did not.  Be careful getting talked into or thinking this will be bullish for hogs, you may see some short-term price spikes, but for the most part it will take the market some time to work through the heavy weights once again.  I am still long-term bullish and I will be looking for a good set-back to build a position for a higher run into the summer months.   

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