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Rising Open Interest in Lean Hogs a Bullish Technical Sign

by Archer Financial Services | Aug 08, 2017
By Dennis Smith 
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LEAN HOGS

Monday saw an impressive rally in hog futures on volume of trade reported at 52,300 with open interest rising by over 3,500 cars. This surge in OI on the rise in prices confirms the bullish nature of the rally and tends to suggest it will hold. We’ve certainly been bullish and expecting a strong expiration in the Aug contract. Packers were successful in their effort to throttle the cash market with prices quoted down $1.00 on the late report. So the latest index at 8610 compares with Aug futures which settled at 8340. These will converge on Monday. We’re long a host of calls most of which are the 86 calls but we also own some 82 and 84 call strike prices. We did not/have not moved into speculative long positions in the Oct but we did manage to lighten up on profitable short hedges before the market turned strong. The direction of the cutout was higher, quoted up $1.79 last night. The weekly kill is projected to be slightly larger this week but we’re also hearing there’s not enough pigs to get the kill this high. Look for a fully steady to higher open and most likely a higher close today.

 

LIVE CATTLE

LC failed yesterday on volume of trade reported at 60,500 (average) with open interest coming down by 4,100. Longs, disappointed longs continue to come out of the LC futures market. There was no main story or event to explain the limit down performance yesterday in the most active Oct LC. We’ve been preaching about the huge production coming down the pipe in the fourth quarter. I’ve stated many times that Thursday’s USDA supply/demand report will likely report an upward revision in fourth quarter beef production. In addition, I’m hearing that the upcoming on-feed report, scheduled for Friday the 25th, will be bearish. The Oct settlement below the June lows is bearish. The chart pattern also confirms a board head-and-shoulders top formation. The beef was lower with the choice down .89 at $202.72. This marks a new low for the summer in the choice beef. A few cattle traded at $1.16 in the north but not really enough to call this a market. We’re hearing that bids will surface at $1.15. In Aug FC, it takes a close below 14200 in turn that chart bearish. This week’s kill is expected to exceed last week by a slight margin but rise above last year’s pace by over 9%. Too much beef. Look for a choppy, two sided trade likely followed with a lower close. 

 
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The risk of loss in trading futures and options on futures can be substantial. The author does not guarantee the accuracy of the above information, although it is believed that the sources are reliable and the information accurate. The author assumes no liability or responsibility for direct or indirect, special, consequential or incidental damages or for any other damages relating or arising out of any action taken as a result of any information or advice contained in this commentary. The author disclaims any express or implied liability or responsibility for any action taken, which is solely at the liability and responsibility of the user. In addition, the author of this piece currently trades for his own account and may have financial interest in the following derivative products: (corn, soybeans, soybean meal, soybean oil, lean hogs, live cattle, feeder cattle).

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