Open interest continues to decline in lean hog futures By Dennis Smith

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Tuesday, May 31, 2022 

GRAINS: 

Russia keeps telling the world that grain export corridors can be opened given certain conditions. Ukraine won’t allow Russian ships to enter to de-mine the Black Sea for fear of further invasion. You don’t invite the enemy to your doorstep. A grain corridor with the understanding that sanctions must be lifted is extremely unlikely to occur. The Russian strategy appears to be one of deflection of responsibility, of blame in the event of a global food crisis. July soybeans are at fresh contract highs. Bean oil is consolidating before a possible upside breakout. IMO, a breakout to the downside is extremely unlikely. My sources suggest that corn planting is likely finished in ND. I have no fresh recommendations at this time. I’m bullish corn and soybean oil.  

LEAN HOGS: 

Cash was a touch lower on Friday and called fully steady for today. The cutout was down $1.97 on Friday and the carcass lost .95 in value last week. Last week’s harvest was 2.351 million, lower than both the previous week and last year. Sources indicate that China is easing up on their lockdown strategy. Shanghai is opening. The pent-up demand unleashed when they truly open will be huge. Pig prices in China are well off recent lows but also well below break-even. I’ve given up trying to anticipate what is going to happen next in China. ASF has been picked up in commercial hog herds in Germany. The EU is facing a major problem controlling this disease. Last week we liquidated most of our Jun 110 calls but we still own 115 calls and we still have a host of July bullish positions on the books. Open interest continues to decline in lean hog futures. The CME may have a major problem on their hands. The huge daily limits of 475 points are not helping, not helping at all. I remain bullish into the seasonal high timing which I’ll call Jun 10th.  I suspect futures move higher today.  

 

LIVE CATTLE: 

Open interest from Friday’s “nothing:” trade was up 558 cars. Feeders are pulling back. In the midday report I’ll pencil out a bullish Aug or Oct feeder cattle three-way risk reversal. The depletion of the beef production machine in the U.S. continues in force.  The beef cow kill remains elevated going into the sixth month of the year. We’ve been culling cows for over two years. The backside of this is going to be fun. Cash steer prices, just one year out, may be record high. During the first half of June we’ll re-position in Feb and Apr with bullish positions. Possibly some bullish feeder positions as well. Look for a choppy early trade today.  

  • Look for a bullish three-way risk reversal in Aug and Oct FC at midday. 

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