Open Interest Sharply Higher in July LH Puts, By Dennis Smith

Tuesday June 27, 2023 


The bullish corn trader is going to take an elevator ride down, hard and fast. Support was penetrated early this morning (576-571) like a hot knife through butter. The next support is 550 and I anticipate this will be taken out shortly after the 8:30 re-open. Substantial rain is in the forecast for Central IL and Central IN starting Friday and into Saturday. There’s rain in the forecast for the Corn Belt for the next ten days. One weather guy on twitter, one that’s always bullish, is now forecasting flash flooding in Central IL. The market was held in check yesterday by three items, wheat and uncertainty surrounding the fluid situation in Russia, disappointing rain in the dry areas last weekend and expectations that crop ratings would be lower when reported yesterday afternoon. The lack of response to the sharp drop in crop ratings is confirmation of something I first pointed out in December. Corn prices have been elevated for over two years, severely eroding the demand sector. If rains materialize and July is wet as forecast, corn prices, IMO, are headed sharply lower. This is not a new outlook but one I’ve been projecting since early December. We are positioned accordingly. For livestock producers that have a concern about the weather, consider the following strategies to partially protect your livestock enterprise. As for the rest of today, look for aggressive selling and a sharply lower close. FND for July corn is Friday which means any longs have to be out by Thursday’s close.  

  • For livestock producers, consider the Dec corn 620/680 call spreads to hold in case the rains are disappointing.  
  • Also buy Sep corn short-dated 690 calls. These expire 8/25. 


July and Aug pigs were higher to sharply higher yesterday, but the Aug closed 275 points off the session high. Open interest was down about 1,100 cars each. However, total OI in hogs was up 1,829 with increased OI in all deferred months. I noticed that open interest in July puts was up 1,600. Major plays are being established to hold as the silly prop 12 law comes into play starting July 1. Cash hog prices were steady to down $2.00 yesterday and the carcass was up $2.19. Packer margins are improving nicely and actually may be slightly profitable. There has been a scramble to book and ship product into CA ahead of July 1. My sources suggest that by the end of July, all stockpiled pork will be gone in CA. Pork will be backing up in the pipeline by Aug. The move downward in Aug could be epic. We’re holding put spreads. Yesterday’s high in Aug, 9280, likely will not be taken out. Aggressive traders can sell the Aug and place a stop just above that high. The weekly kill is projected to come in at 2.319 million, up nearly 2% from last year. The quarterly hog & pig comes out Thursday but it likely will not pick up contraction of the U.S. breeding herd.  


Given that May placements in NE were up 14% due to drought and due to the fact that marketings were better than expected, the impact of the so called bearish on-feed report was minimal. The weekly kill is projected to be huge, possibly as large as 660+, some say as high as 670k. Last week’s kill came in larger than expected at 649k and this was the largest weekly harvest of the entire year. Packer processing margins, amazingly, remain highly profitable. Last week’s negotiated volume was 79.1k, not huge with about 25% bought with time. The show list is sharply lower this week, down 10k in TX, down 6k in KS and down 1k in NE. Packers will need to buy cattle in the face of the huge kill. Next week is a holiday disrupted week which will only serve to deplete the pipeline if they don’t kill aggressively this week. The fundamental situation remains quite bullish. Buying Oct or Jan feeders looks attractive. Look for a specific rec in the midday report. Edge out of long Aug LC futures on either side of 17300. My next major play will be adding to length in the Apr LC futures and options.  

  • Exit Aug length on either side of 17300.  
  • Prepare to add to length in the Apr LC futures and options.  
  • Aggressive traders step up and buy Oct or Jan FC.  


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