Sharp Drop in Open Interest in Live Cattle Futures
By Dennis Smith
312-242-7905
Tuesday, April 26, 2022
GRAINS:
The U.S. winter wheat crop is poor with ratings the lowest since 1989. Too bad because the world is going to need wheat. Only 7% of the corn crop is planted to date. Wow. Only about 10% of the crop will be planted in April. May weather is going to be awfully important. IMO, the late start will cement the low corn acreage. At this date no one is going to switch gears and decide to plant corn instead of beans. The downward correction in corn prices was very shallow and consisted of five trading sessions. Enough to correct the overbought condition. It took a pair to buy the market early yesterday but that’s what we did, believing in the trend and believing that the corn market is in a major crack. Cash palm oil prices were sharply higher overnight. As we learn more about Indonesian palm oil exports, refined oil exports account for nearly 50% of their exports. So, upon further reflection, the ban on refined palm exports is very meaningful after all. We rolled all May bean oil into July. Record high prices are anticipated.
- In Dec corn options, buy the 720c/sell 850c/sell 660 puts at even money. (FILLED AT A 2 ½ CENT CREDIT) (currently trading at 9 cents…nice)
LEAN HOGS:
Open interest in hog futures was up nearly 2,000 cars from the limit down performance yesterday. Volume was not heavy at 43k. I see two things this morning. First, the focus of the trade MUST be on the Chinese COVID lockdown to explain the aggressive selling in futures recently. But why? The Chinese have not been buying (booking) U.S. pork for months. Yes, they’ve been shipping about 3,600 MT each week but no new sales. Granted, the backlog at Shanghai (port) could begin to slow shipments into China but does this merit the slam in futures? (I have more questions than answers today) Or is the selling solely due to the slowdown in global economic growth expected due to the Chinese economy slowing due to the clamp down? Well, pork consumption is typically not hurt nearly as much as beef during a slowdown in the global economy. The second item I’ve noticed upon reflection overnight is that hams appear to be getting cleaned up. If hams are good then hog futures are good. The two are highly correlated. Keep in mind that packers are still chasing hogs on the negotiated market and be aware that pig prices are moving sharply higher in the EU and they appear to have bottomed in China. The range of trade is 700 points for today which means Jun hogs can go as low as 10702 or as high as 12102. I have no new recommendations but my only advise; don’t sell this market down here.
LIVE CATTLE:
Place sell stops on all Oct LC long positions at 14320. Recession is the big threat. If there is no recession, live cattle prices go sharply higher over time, IMO. Open interest dropped by over 6,600 cars on the break yesterday. Volume was active at over 79k. I consider this information supportive. I’m still hearing that cash steer prices might trade higher this week. Some of my sources are reporting that placements in March were very heavy in the first two weeks of the month and then dropped off dramatically in the second half and they remain light through the first three weeks of April. I’m not in favor of selling anything down here. The cash steer trade, for a Monday, was active with TX reporting over 4200 head moving at 140. Could this early trade be the lows for the week? Other than protecting the Oct long positions I have no new recommendations for today.
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