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Large Premium To Cash Should Attract Selling To Live Cattle Board

by Archer Financial Services | Oct 04, 2018

by Dennis Smith
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LEAN HOGS

On Monday Dec lean hog futures reached $60.00, a startling $16.00 off their August lows. Oct hogs reached $67.00, levels not seen since early July. The Oct/Dec bull spread exploded higher and now sits at over $10.00. Technically, there’s nothing bearish going on here. Open interest dropped in both Oct and Dec hogs yesterday as shorts peel out of the Oct as it races higher, chasing the cash market while longs in the Dec liquidated, taking their cue from the surprisingly weak early trade. Weights remain nearly 2 pounds lower than last year confirming that the industry was pulling hogs ahead both before and after the hurricane. Most surprising of all, however, is the expectation that this week’s harvest will fall short of the actual kill one year ago. No one expected this. With China on holiday this week there’s not been any updates on the ASF situation. We’d anticipate support to become evident on a lower trade today. Today marks the “third day” down against the uptrend.

LIVE CATTLE

Live cattle futures closed lower across the board on Wednesday on volume reported at 50,700 with open interest rising by nearly 3,200 cars. Open interest was lower in the spot month but higher in all other LC contracts. Given that Tuesday marked new high settlements I’d describe yesterday’s selling as new shorts, new hedgers taking full advantage of huge premiums to the cash. Technically, a close in the most active Dec below 11800 will likely usher in additional selling. In contrast to light trade in the north, on Wednesday the USDA reported no cash steer trade. The beef is working lower with the select beef pushing downward into new recent lows. Most have been touting a bottom in the beef which is clearly not established just yet. With cash likely to trade again this week at $1.11, look for the premium board to likely attract additional sellers today. Oct LC options expire on Friday. In Feeders, there’s a seasonal peak approaching with futures typically grinding lower for the next 60 days.

   

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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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