Dennis Smith from Archer Financial Services, August 4th 2020

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Active Short Covering Indicated in Feeder Cattle By Dennis Smith

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Tuesday August 4, 2020

SOYBEANS: The weather pattern continues to look good for producing huge crops this fall. FC Stone came out with their yield projections of 182.4 (record large) for corn and 54.2 (record large) for soybeans. We’ve already executed some of these this morning.Recommend buying the Oct Soybean 880 puts at 11 cents  

LEAN HOGS:

Cash was lower yesterday, quoted down .50 to $1.00 and the cash is called steady to lower for today. Cutout can’t hold up under the weight of huge production. Hams are the problem with bone-in hams in excessive supply. Labor problems remain in place and as we transition into the fall runs, it will likely get worse before it gets better. Hog open interest dropped by 1300 cars so maybe we knee-jerk back upward today. If we do, we’re trying to get short in the Oct hogs. The seasonal is lower into late August with a major low expected in mid-Nov.

LIVE CATTLE:

There was a sharp drop in FC open interest yesterday hinting at large short covering. Total FC open interest dropped by 1,700 cars. OI declined in the Aug, Oct, Jan and Mar contracts. Perhaps this will mark a near term high? Another difference from yesterday was the fact that packers were not bidding on cattle on a Monday. Packers purchased large numbers last week with 453K bought 26% of which were negotiated. EVERYONE is convinced the cash will be higher again this week after reaching a six-week high last week. Certainly, the LC board is bullish with another higher close yesterday. The premium structured board is effectively working to fill the hole created by the sharply lower placements last spring. In effect, now, feedlots will be pulling cattle off the show list and giving them more time on feed, hoping to capture the gains as penciled out on the board. Indeed, the show lists are smaller for this week. I would not consider this bullish longer term. We are nibbling at hedges after scrambling out of the Aug hedges three weeks ago. Our efforts are focused on the Oct options and the Apr options, leaving winter cattle unhedged. Call in with questions.

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