The Beef Packer Chase Likely Begins This Week By Dennis Smith
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Thursday March 21, 2019
Expanded limits today. Volume yesterday was 63,700 with open interest rising by 3,300. A dramatic rise in OI is noted in the Dec and Feb. The back end is where the very large investment money is coming into play. A major investment bank has been noted buying very large numbers of the April 2020 92 calls. Yesterday’s volume in this option was over 2,200 with open interest in the strike price jumping by over 2,100. The investment community is beginning to realize the massively bullish implications of what’s happening in China. My only surprise in this is “HOW LONG IT TOOK”. We’ve been accumulating calls since last fall and completely covered short positions months ago. Look for higher cash hog prices again today. Product is solid and should trade higher. Weekly pork export sales were also solid at 29,300 MT with Mexico in for over half (15,500) and China the second largest buyer, taking 3,000 MT. Both large buyers, of course, have tariffs on U.S. pork. China has moved into the Canadian pork market over the last week (tariff free). Shipments were good at 26,700 with China receiving 4,600 MT of pork, paying the tariff. Sales were lower than last week but shipments were larger. Look for upside follow through today of course laced with lots of volatility. My next target in the June LH is 100.50.
LC volume was good at 65,800 with open interest up 6,800 and record large at 450,000. FC volume was excellent at 19,500 with OI here jumping by 1,350. Beef export sales were reported at 18,600 MT which was better than last week’s slow pace. Shipments were reported at 14,400, a bit slower than last week. There’s no cash steer trade to report. We suspect packers are going to have to chase and the chase starts this week. April needs to penetrate resistance at 13000 to partially confirm this outlook. June LC posted a new high settlement yesterday which is a bullish indicator. Fresh contract highs were scored elsewhere. Weight data comes out today. Monthly cold storage and on-feed comes out Friday. We remain bullish.
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