Fund Liquidation Continues in Live Cattle , By Dennis Smith


Tuesday, May 9, 2023  


Corn turned lower in the wake of the doji pattern formed yesterday. The crop is going in the ground at a fast pace. However, concerns regarding ND will persist with rain in the forecast for the north plains this weekend. ND is only 1% planted in corn and they’ve not started on soy yet. The report Friday will be negative but this has been talked about and baked into the board. I’m hoping the normal seasonal remains in place which means corn prices work higher into late May. So, for now, I recommend holding the July call spreads but be ready to exit and buy Aug puts at a moment’s notice.  


Just a small increase in lean hog OI yesterday, up 416 cars. I did notice that someone bought 900 Dec LH 76 calls for 520 points. They invested nearly $2 million in premium on this play. China imported 10% fewer soybeans in April than last year. They’re blaming new customs clearing requirements at the ports. Really? Is this believable or just a rouse? Could it possibly be because feed demand is dropping off the table? It is clear that the fund selling in hogs late last week was tied to Tyson’s poor earnings. Is that a valid reason for pressing hog futures into new lows? Yes, I have more questions than answers today. What we know for sure is that the industry has started a major contraction due to heavy losses that have occurred for months. We know that global pork production is down substantially and we know that U.S. pork is the cheapest pork in the world. Knowing all of this, I’m not interested in jumping on the bearish bandwagon. I’m giving futures the rest of this week to show signs of a bottom, or I’ll recommend dumping the Jun 90 calls and the July 103 calls.  


The fund liquidation continued in LC futures yesterday with total OI down 6,960 cars. Funds have shed more than 20k contracts on this recent liquidation selling spree. The 5-area average cash steer price last week, at $177.93, was down $3.22. Cash is now down just over $6 from the springtime peak. Many are expecting additional weakness this week. Fine, but futures are more than $10 discount. Cash is not going to break another $10, folks. The show list is smaller. Beef is still strong, hovering well above $305 in the choice. The weather is improving for summer demand. Finally, heavy rains are in the forecast for TX, OK and much of KS. Indeed, it appears the weather pattern is changing for the S. Plains. This will slow placements dramatically and potentially stop the cow cull. Both developments will tighten supplies further. Futures need to think about this. Aug feeders should have major support in the 22040 area. In LC, Jun through Dec are discount to cash. This is ridiculous.  

  • Place sell stops on long Oct LC futures at 16325 stop. 

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