Lower Early Trade in Live Cattle Should Uncover Large Buyers

by Archer Financial Services | Oct 30, 2018

by Dennis Smith
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Not sure what to make of the cash hog market for today. Is it really possible for cash to trend upward when we’re in the process of killing over 2.6 million pigs this week? Cash was called lower yesterday and came in higher. The cutout was up .93 at $77.52. Futures rallied and the power was led by the front month Dec hogs. Volume was moderate at 49,700 with open interest edging higher by 440. The strength in the bull spreads is telling me that cash will not crater. Comments from Smithfield CEO recently indicated how poor business is for the largest pork producer in the country. Most hog futures are on their contract highs. It sounds like a lobby effort to end the trade war. Business does not appear to be poor right now in the pork. As Dec futures probe resistance toward 6000, we’ve been actively buying puts for our hedgers.


LC futures set back hard on Monday on moderate volume reported at 62,500 with open interest increasing by 6,100 cars. New sellers appear to have entered the market yesterday in the wake of Friday’s rally. The show list is a bit larger, estimated at 244,500 compared to 239,500 last week. The volume of negotiated trade was large from last week at over 150,000. The selling yesterday was likely tied directly to these two numbers. More cattle available and larger numbers purchased last week. However, don’t lose sight of the FACT that margins are highly profitable and beef continues to grind higher. Packers have every incentive to stay active in the cash cattle market. My sources indicate that packers are touting tight beef inventory positions and asking prices for nearly all beef cuts will continue to increase. Anticipate that any lower trade today, action approaching last Friday’s low, will likely find large buyers a waiting.

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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).