Open Interest Increasing in Both Pork and Beef, By Dennis Smith

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312-242-7905 

Tuesday August 2, 2022 

GRAINS: 

Pelosi is visiting Taiwan and the friction this is causing between the U.S. and China is blamed for the selloff yesterday and today. I’m not buying that bill of goods. The selloff is tied to the weather and the models that show a return to a normal pattern by mid-August. The selling is tied to the fact the soybean conditions improved last week. The selloff occurred because grain is being shipped out of Ukraine. This development is especially negative to veg oil prices as sun seed oil hits the road. The selloff is tied to the idea that a global slowdown in economic activity is occurring, especially in China. If the weather pattern changes, as the market currently believes it will, prices should head lower into an early harvest low.  

 

LEAN HOGS: 

Open interest was up 2,186 in hogs from yesterday’s lower close. Now, the bullish traders say this is bullish. Perhaps. But it tells me that hedgers have a reason to get involved and they’re stacking sell orders throughout the deck. The weekly kill is projected to come in at 2.288 million, the same size as last week’s kill. This should be as low as the weekly kills get. Packer margins are moving into the black, an indication that supply and demand are coming more into balance. Long term I can easily paint a bullish picture. Short term, I’m projecting a top. I noticed the Aug LH 115 puts settled at only 22 points. Buying these at 20 and you’re only paying $80 in premium. Look for a mixed open.  

 

LIVE CATTLE: 

Open interest was up 351 in LC yesterday and FC open interest jumped substantially, rising by 1,171. The uptrend in feeders is solid and should sustain itself. The fly in the ointment is the cash steer market in TX and KS. When will these feedlots get cleaned up? My guys in the south don’t have the answer. The close in the deferred LC contracts seemed to set the tone for a bullish move down the road. The board can and likely will begin to build a substantial premium to the current lousy cash market. Look for another higher performance led by feeders and the deferred LC contracts.  

For a free 30-day trial to the evening livestock wire send an email to: dennis.smith@archerfinancials.com  

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