Funds Sold Hogs Aggressively and Now Caught in a Trap
By Dennis Smith
Monday, November 1, 2021
Wheat prices are strong early today as Egypt is tendering for a large chunk of wheat. The results will be announced later today. So, European wheat values are powerful strong and U.S. wheat prices are following suit. Spring wheat is into new highs whereas Chicago wheat is approaching contract highs from last summer. Corn is slightly higher, soybeans lower and bean oil slightly higher. The outlook for soybean oil remains bullish. For corn and soybeans, it’s not so clear. The weather pattern in South America is negative. Traders need to be aware of this. They appear on their way for a record large crop. Soybean ending stock projections are not tight. Corn ending stock projections are not tight either. By the end of this week, I suspect I’ll be recommending short positions in March corn futures/options. Stay tuned.
Hogs exploded higher on Friday with open interest down 606 cars. The open interest in the Dec was down more than 3k. This contract holds too much of a discount. The COT report indicated that funds were large sellers in the latest period, dumping over 17K and likely moving from long to short. Now, it appears they’re caught in a bear trap. OMO the problem of slowed chain speed, that killed the cash hog market last summer, will correct itself as numbers drop off. I’m speculating that CA prop 12 may be delayed for a year as the political environment is not good with gasoline prices sharply higher. I’m projecting that China will return as a major buyer of U.S. pork in the months ahead. IMO, global pork production is falling in the face of rising demand and inflationary pressures. This is a very bullish combination, and the futures market has no business being discounted. Anticipate a two-sided trade early today followed by another higher close.
The mystery selloff in LC on Friday occurred on rising open interest. FC open interest jumped by over 1,300 cars. This, honestly, I don’t understand. I’m not comprehending the lower trade from Friday. Everything I track, everything I know about cattle tells me to be bullish. The single fly in the ointment is the possible kill disruption at Tyson with the Nov 1 line in the sand regarding vaccine mandates for employees. Does the market really believe that Tyson will systemically fire a huge number of employees and place the company at a huge disadvantage to the other three large packers? Perhaps it does. The industry is so tired and so beat-up that most can’t fathom a bullish market situation. It seems impossible to many even through it’s right in front of us. I’m bullish. Recommend the following which was only partially filled late Friday.
- Buy Oct 22 LC at 13410, no stop at this time.
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