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Funds Continue to Blow Out of Length in Live Cattle Futures

by Archer Financial Services | May 07, 2019

by Dennis Smith
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LEAN HOGS

No read yet on cash hogs for today. Yesterday was quite variable with quotes ranging from up .25 to down $2.25. Packer margins are slightly red. Volume on the limit down was just over 25,000. No change in open interest (up 193). Certainly a test of last week’s lows is likely but they’re also likely to hold, in my opinion. Here’s what we know about the trade negotiations. First, the tweet by Trump on Sunday was not just a “shoot from the hip” reaction. It was well planned out with all of his advisors on board. Reports indicate that the Chinese were trying to back-track on previously agreed to provisions. No going backwards…no going back is the clear message being sent. The trade delegation is still headed to Washington including Vice Premier Liu. The odds are favorable that a deal will be reached mostly because both sides need and want a deal. It also appears highly likely that some tariffs will remain in place after a deal. Consider this news bearish for soybeans. The Chinese will likely leave their tariff in place on soybeans while lifting their tariff on pork. They need our pork. Look for hog futures to begin trading 60 to 100 lower and, in my opinion, buyers will surface. Expanded limits of 450 points either down or up are in effect today. WE REMAIN BULLISH.

LIVE CATTLE

It was a high volume session in LC yesterday at 100,150. Open interest declined by over 8,000 contracts as the funds continue to blow out of length. The Aug and Oct have what I consider bottoming patterns in place. Look for a recovery today in the LC. The move won’t be sponsored by the supply side fundamentals which are bearish. The show list is larger and last week’s kill was huge. The projection for this week is 661,000, down from last week’s 670 torrid pace. The beef is struggling in the face of nearly zero seasonal beef demand. Still, despite the bearish supply side fundamentals, Tyson Foods warned yesterday of rising meat prices for pork, chicken and beef. At some point the demand for U.S beef should improve vastly. Futures are grossly oversold.

  
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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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