Morning Livestock Report with Dennis Smith, Huge volume trade heavy hams….again.



Tuesday, October 19, 2021 


We are having success exiting the bullish corn positions with small profits. We’re holding mostly March bullish three-way risk reversals. These were established between even money and a 5-cent premium outlay. We’re exiting at 7 cents and higher. Corn prices are slightly higher early today. Bean oil is slightly lower. There’s no information out of Malayasia today. Perhaps they’re on holiday. I need to see a close above 6200, well above 6200 to signal a move to 7000. We are on board. Wheat prices are firm and wheat is facing the strongest fundamental landscape. Recommend unwinding the bullish wheat 690/790 call spreads at 64 cents. FYI, this call spread is currently trading at 48 cents. Recommend holding the Dec spring wheat 900/1000 call spreads all the way to expiration.  


Like a leaky barrel the open interest continues to come out of both lean hog and live cattle futures. Lean hog OI was down 1,342 from yesterday. Next the OI from the expired Oct contract will come out and then, perhaps, OI will bottom out. The feature yesterday was the volume of trade in the heavy weight bone-in hams, trading over 3 million pounds. After discussing with sources, it appears these hams may be going to Mexico, in huge quantities, where labor is available. They’ll be boned, further processed and exported. Some may even come back to the U.S. market. Because they have no labor, packers are essentially giving money away, not something they like to do. Lean hog futures are carving out a bottom, IMO. Perhaps we are not there yet, but close. Seasonal low timing is due from early to mid-Nov. At the moment I have no new recommendations but look for a Feb LH bull call spread idea in the midday pork and beef update.  Eventually we’ll look to establish bull call spreads in the Feb options and also move out to the June and/or July.  

What is happening world-wide in the pork industry is very bullish over the long term. U.S. producers are liquidating breeding stock, producers in the EU are liquidating breeding stock and producers in China are liquidating stock big time. In tonight’s wire I’ll address this further. Losses in China are huge and on a scale never seen before ever…anywhere. They are currently losing $200/head. According to Jim Long, China markets 13 million hogs per week. The industry is losing over $2 billion per week. This has been going on, to some extent, since January. REPEATING, I’M VERY BULLISH LEAN HOG FUTURES DOWN THE ROAD.  


Open interest was down just over 1,000 cars in the LC with FC OI losing 176 cars. Open interest in LC is at a low water mark. This means there’s a huge number of buyers, players on the sidelines. Funds have given up their long positions. Yet the technicals are now bullish and the fundamentals are turning bullish. It should be the start, the beginning of a historical run higher over the long term in live cattle prices. We are on board. For this week the show list is smaller with KS the problem child. The cash steer outlook is firm to higher. Beef prices are stabilizing, and they’ve done so about $20 above the summer low. The weekly kill is projected to come in at 651k compared to 646 last week. IMO, the actual kill may come in closer to 660k which would be bullish. Yesterday’s action in LC was an inside day. So, a consolidation that can’t be viewed as either bullish or bearish. Jan FC should uncover support near 15920, just under yesterday’s settlement. Feeders yesterday at OK City traded steady. Most active Dec LC is wedged between the 40-day MA (13005) and the 50-day (13090). A close well above the 50-day MA would be bullish. Wait for it.  


The risk of loss in trading futures and options on futures can be substantial. The author does not guarantee the accuracy of the above information, although it is believed that the sources are reliable and the information accurate. The author assumes no liability or responsibility for direct or indirect, special, consequential or incidental damages or for any other damages relating or arising out of any action taken as a result of any information or advice contained in this commentary. The author disclaims any express or implied liability or responsibility for any action taken, which is solely at the liability and responsibility of the user. This report is a solicitation.