Open Interest Surges Higher in Livestock Markets
By Dennis Smith
312-242-7905
Wednesday, February 2, 2022
GRAINS:
The surge higher continued overnight with soybeans leading the charge. The market has taken care of the weekly resistance from 1480-1500, moving through that level like a hot knife through butter. Talk of dry weather in the southern part of Brazil. How many times are we going to kill this crop??? Open interest surged higher in corn, soybeans, meal, oil and wheat from yesterday’s trade. The old crop is still gaining on the new crop and basis bids have not collapsed, yet. So, no sign of a top. When I see indications of a top I’ll be recommending buying large numbers of April soybean puts. Of course, I strongly recommend that producers continue to scale into Nov puts. Stay tuned.
LEAN HOGS:
Yes!! On the upside breakout yesterday, confirming the bull flag formations in the Apr and all summer hog contracts, open interest surged upward. Open interest in Feb was down 964 with open interest rising in all other hog contracts. Total OI was up 5,937. New money is pouring into the market at breakneck speed. The closing pork report just came out. The cutout was down $1.54 at $92.97. A soft tone in hams and bellies was noted with hams backing off to 43 cents on huge volume of over 3 mm lbs. Loins were sharply higher on the sheet was only a touch higher in the primal calculation. Look for the carcass to be sharply higher by the end of the week. Still no report on cash hogs yesterday but look for cash to be sharply higher today with the winter storm a major problem.
The global hog herd continues to decline. We believe China has been culling pigs for a year. The EU is hurting, all producers are losing money and culling the herd. German pig inventory resides at a 25-year low. ASF is jumping around Europe and France is likely the next shoe to drop. Recent news indicates severe problems in the UK. Packers are having serious labor issues as migrants leave the country in groves. Hogs are backing up at the farm much like they did in the U.S. in the spring of 2020. Reports confirm that 10% of the herd in Great Britain has been culled over the last six months. Britain is not a large pork producer, but the point is that global hog numbers are in retreat. PEDv is hitting producers in Manitoba, and I have confirmed that 100,000 sows have been hit with this disease. In addition, overnight I’ve managed to confirm that indeed 80% to 90% of the truckers have been vaccinated. So, this story has a lot of headlines but not severe in substance. I’m bullish. Look for upside follow though today. A severe winter storm is currently hitting the Midwest.
LIVE CATTLE:
I’m hearing that some $1.40 was paid late yesterday to regional packers. IMO, the southern plains will receive 140 this week. Beef was sharply lower but that won’t derail the uptrend. Open interest was up 2,940 cars yesterday. OI in Feb LC was down 2,094 with OI higher in every other cattle contract. This is bullish. Look for talk of rising cash to support futures today. In feeders, I recommend moving the sell stop up to breakeven. We’re long May FC from 16930. I’m not adding cattle length up here.
For a free 30-day trial to the evening livestock wire please send an email to; dennis.smith@archerfinancials.com
