Open Interest in Live Cattle Continues to Surge Higher

by Archer Financial Services | Nov 01, 2018

by Dennis Smith
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Cash hogs are called mostly steady for today which appears to be a major victory given the supply outlook. The weekly kill will be record large but it’s also expected to fall short of early week projections. So look for a weekly harvest of just under 2.6 million pigs. The fact that cash so far this week has been higher and not lower is clear testimony to outstanding demand for U.S. pork in the face of record large supply being pushed into the pipeline. Producers are current which is critically important when dealing with record large numbers. Moving forward it will be important for producers to remain current through the winter months when many variables can contribute to backlogged supply. Producers backed up hogs last summer causing prices to drop like a stone in the second half of summer. Weekly exports sales were huge at 21,800 MT, up 43% from the 4-week average. Mexico was in for over half of this business. Such strong sales certainly helps explain the cash market this week. Shipments were also very impressive at 25,800 MT, up 8% from the 4-week average. Yesterday’s action in futures was certainly suggestive of a near term high or top. It could be a major top in the Dec. On a 40-50 point bounce today, approaching 6000, strongly recommend buying a host of Dec puts, if you still need some hedge protection. Dec hog puts traded 10,600 times yesterday with open interest down slightly. Dec calls only saw volume of 1,700. Otherwise, we’re long term bullish and hoping to use a lower trade today in the summer hogs to purchase some Aug calls.


Is the move in live cattle over or is it just beginning? Many have opinions on both sides. The result has been a jump in open interest in LC futures this week of over 8,000 cars. Total open interest stands at 348,500, the highest since late May. Weekly beef export sales were huge at 25,300 MT, up 77% from the 4-week average. Hong Kong was in for half of this (11,100 MT). Shipments were measured at 16,600 MT, or unchanged from the 4-week average. Beef continues to scoot higher and packer margins are highly profitable. I thought the strong close in FC yesterday was significant. We’re bullish the live cattle market and, addressing the opening question, we believe the move upward has just started. Look for a higher cash steer market when it trades either today or tomorrow.

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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).