Large Volume and Higher Open Interest on Cattle Rally By Dennis Smith
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Tuesday January 7, 2020
Hog futures pushed into new lows early yesterday but recovered and spent most of the session slightly higher. Volume was 44,300 with open interest rising by 2,500. I consider this action and change in OI supportive. If I’m correct about huge offtake early this month, it should become clearly evident in the product arena by the end of this week. Cash is called flat to possibly lower. The pork carcass was slightly higher. China needs pork and there’s nothing holding them back once phase one is signed. This is expected to happen one week from tomorrow. The latest CME lean hog index stands at 5919 compared to Feb futures which settled yesterday at 6860. Key areas to watch are 7100 in Feb futures and $83.00 in the pork cutout. We’re in the process of covering short calls in the April which leaves up outright long calls and ready for a major rally, should it occur.
Yesterday’s impressive rally in LC occurred on active volume of 85,300 with open interest surging upward by 5,200 cars. So the rally has technical merit which should see upside follow through today. Several contracts posted fresh contract highs on the rising open interest including Jan feeders. An aggressive kill is on tap again this week in the wake of very large negotiated volume of trade last week. In addition, adding fuel is the double edged sword of smaller show list numbers and expectations for an impressive jump in wholesale beef prices this week. Look for upside follow through today.
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