Open Interest Continues to Drop in Lean Hog Futures, By Dennis Smith

By Dennis Smith  


Monday June 13, 2022 


Corn gapped higher last night but the market pulled back in the overnight trade, filling the gap. Dec is bumping up against the 40 and 50-day MA (727-730). A close above resistance would signal a move to the contract highs. I consider the odds of this happening very high. While crop ratings are expected to be unchanged today the Corn Belt is going to get blistering hot this week. The ridge appears to stay in place with the forecast issued yesterday still bullish. We have normal to below normal precip and above normal temps in the forecast to June 26. Soybeans are lower as this market takes a break from moving into record high territory last week. IMO, this is just a pullback before surging higher, again. Palm oil futures and cash prices were lower overnight, dragging bean oil futures lower. Veg oil prices are expected to remain elevated. Malaysia is facing a severe labor shortage which will limit palm oil production. While early in the growing season, any threat to the U.S. soybean crop will send bean oil futures sharply higher. Part of the early selling today, no doubt, is linked to the stock and bond market weakness. The Fed is expected to raise interest rates ¾ of a percent on Wednesday. No new recommendations.  


Open interest in lean hog futures was down 488 from Friday’s action. The cutout was quoted up $2.50 at noon Friday but the closing pork report showed the cutout up only .07. The hog carcass was down .22 for the week. This is bearish. There is no urgency, no strength in the hog carcass. Heat will impact hog weights over the next few weeks, but current weights are up nearly 3 lbs from last year. Packer owned hogs are running heavy which is how they deal with tight supplies of butchers. Everything is always in the packers favor. Futures have topped. Numbers are not dropping off as forecast and China is not in the market. Exports are lousy. The summer market is over. I’m looking to go short Aug futures. We’ve liquidated all summer calls that had value.  


Traders long the market and enjoying a quick windfall from the recent sharp rally evidently exited the market late last week. Open interest from Friday’s lower trade was down nearly 4,400 cars. As longs are eager to exit the traders caught short are also willing to exit in the face of rising cash steer prices. Cash traded as high as $1.40 Friday in the south and up to $1.43 in the north. Traders short the market were covering shorts near 136 in both June and Aug futures. Stocks are sharply lower early this morning which will bring in some selling in cattle futures early today. After the early selling is absorbed, I’d expect a recovery back upward with the idea that cash will trade firm to higher again this week. The beef was up .22 on Friday and the choice cutout was up $4.06 last week. With corn prices not sharply higher look for feeders to start out higher this week. IMO, feeders have scored a major bottom. We bought a few Oct FC late Friday at 17760 risking 100 points. It might just work?? Last week we added length by executing an Apr LC three-way risk reversal. For now, no other trade rec.  

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