Open Interest Sharply Higher on the Hog Rally,By Dennis Smith

Friday February 16, 2024


Corn is flat with wheat lower (testing major support at the Nov lows) with soy slightly higher. Meal is up with bean oil down. Open interest in corn has declined in the last two sessions on the lower closes into fresh contract lows. The funds are not adding to shorts down here. It appears that bullish traders (finally) are giving up and exiting the market. Indications from the interior part of the country indicate that producers have not turned sellers yet. This will likely happen before the end of Feb, driving futures lower and possibly forming the bottom. We’re running out of time on our Mar 440 puts that are highly profitable. Take the money.

  • Recommend liquidating all remaining Mar corn 440 puts at 22 cents.


OK, wild market. Our Apr LH 86 calls nearly tripled in value in 48 hours. We unloaded half. What is happening? Well, weekly exports were huge with Mexico and China both major buyers and major shippers of pork last week. The data may not be accurate, or it may be making up for missed reporting in the previous few weeks. The surge to China is really a surprise and, again, this may not be accurate. But the market believes it with open interest surging higher by 7,395 cars yesterday on volume of 60.5k. For the second consecutive day, on a higher trade, open interest has increased in every hog contract traded. Bearish producers, holding hedges below break even, are now completely underwater. They’re now losing both in cash and in the futures. What a mess. I suggest looking at my article posted in National Hog Farmer from Feb 5 titled: Six Reasons to Suspect a Rising Hog Market. Many were highly critical of this article when published. For today I have no recommendations. I suspect futures start out higher and then turn lower.


Open interest has edged higher in both fats and feeders the last couple of sessions. Both markets remain technically strong although in correction mode. I suspect the correction is nearly complete both in time and price. If I’m correct, it’s been a shallow correction in a powerful strong market. The long-term fundamentals remain bullish. Packers bought more cattle yesterday at even lower money than on Wednesday. Packers are slowing the kill as expected. The weekly harvest is running 15k lower than last week’s pace. The lighter production is also supporting the beef. Choice beef is up around $1.50 so far this week with select beef stronger. Choice beef under $300 won’t last much longer. End users, the smart ones, are aware of this. When springtime demand hits this market, packers will be forced to compete for inventory or risk losing market share. Cash will take off. There’s not going to be much feeder supply moving forward. The number of animals outside the feed yards are record small. Corn prices have dropped over 70-cents since November 1. It’s time to step back into the market after taking profits on long Oct LC futures a couple weeks ago. Yesterday we established the Mar FC 246/253 call spreads. Today, I want to add to this using Apr FC options. I recommend stepping into the Apr FC 256/262 call spreads for 170 points ($850) or lower. At midday look for a bullish three-way recommendation in Jun LC options. Look for a choppy, two-sided trade today.

  • Establish the Apr FC 256/262 call spread for 170 points. ($850 premium outlay)

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