Active Trade Noted Yesterday in Dec Hog Calls By Dennis Smith
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Tuesday December 11, 2018
A couple of scheduling announcements. The USDA will release the quarterly hog & pig report and monthly cattle-on-feed report Thursday, Dec 20th at 2:00 Chicago time. These reports were originally scheduled for Friday the 21st at 11:00. China announced they’ll be increasing corn imports next year and the Chinese are expected to purchase a slug of U.S. Ag goods as part of the cease fire. Announcements are expected soon. The USDA grain supply/demand report will be released today at 11:00. Today’s data will also provide updated meat supply/demand tables.
Cash is called flat to lower which IMO likely means it will be higher. The talk is that packers still need some pigs for the Sat kill effort which is going to be large. Next week’s kill is expected to be huge which will prevent hogs from being backed up over the following two weeks. Yesterday the volume in Dec calls, which expire Friday, was nearly 2,500 with open interest increasing 1,000. Volume was active in the 55, 56 and 57 call strike prices with the 57 calls the largest volume at 1,200. The index resides at 5612. Someone is looking for higher cash hogs the rest of the week. From a demand standpoint we are very bullish. Securing puts is our hedge strategy while owning calls, April through August is our spec strategy. Toward the middle to end of this week we’ll take a look at buying Feb hogs for a spec position.
As noted above the monthly cattle-on-feed report will be released on Thursday, Dec 20th at 11:00 Chicago time. I’m hearing that placements will be lower, perhaps sharply lower. The show list is slightly larger this week. The weekly kill projection is 651,000 which is down from last week’s monster kill of 667,000. Beef was higher yesterday, not lower as most traders predicted. Like hogs, we are outright bullish LC from a demand perspective. However, the futures market acts very sluggish. There was zero enthusiasm to buy the market yesterday in the wake of higher cash steer trade late Friday. We’re expecting a fully steady to firm tone to persist again this week in the cash market. The COT report showed that funds are holding a record large short in the feeders. Perhaps this market will lead the beef complex higher. A close over 14600 in Jan FC may give the funds a bit indigestion.
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