Long liquidation continued in hog futures on Monday with total open interest declining by 3,220 contracts. OI was down 1,300 in the Oct, down 2,200 in the Dec and down 1,300 in the Feb. IMO these are high priced longs taking their medicine. Look for more of the same as record large production offsets good demand for pork, keeping product stable but likely allowing the cash to also stabilize. For reference the latest CME lean hog index stands at 5642 compared to the Oct settlement of 5902. I’m expecting the Oct to go off the board somewhere between 5600 and 5700. If this is correct, I’d then look for pressure in the Dec toward this level. The seasonal tendency indicates to look for a top now. Resistance in the Dec stands at several layers including 6180-6220, 6280-6320, 6350 and 6400.
Live cattle posted a mixed to higher close on Monday. Volume on the holiday was moderate at 57,000 with open interest coming down by 2,700. There were zero deliveries posted on FND with the oldest long in the Oct LC at May 2nd. The beef was higher but this may not last. Wholesale beef prices stand 8% higher than this time last year. This is simply not sustainable in our opinion. About 1,700 head traded yesterday in IA at $1.08 which was not as high as we were hearing during the session. The bulk of trade occurred last week at $1.09. The show list is slightly smaller than last week as feedlots delay cattle marketings in response to the premium structured board. This will work good until the cash tops. The weekly cattle slaughter is projected to be 634,000, or about the same as last week. Look for a mixed to mostly higher early trade.
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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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