Huge Play in Apr LH Puts

LEAN HOGS:

Hog futures traded huge volume yesterday, over 90k with total open interest up 4,096 on the strong rally. OI in Oct dropped by nearly 6,800 cars. Today is the fourth day of the Goldman Roll. The volume of trade in puts was nearly double that of calls. Listen to this; someone bought 2500 Apr LH $40 puts for 5 points. They poured $50k down a rat hole on an ASF event bet. Apr futures settled at 8522, so the $40 put is $45 out of the money. Insane, but his why I refuse to trade LH futures from the long side or even hold a bullish marginable hog position. I would much rather spend money on a Jun call that is $25 to $30 out of the money. My sources are suggesting that meat supplies will get really tight going into the summer of 2024. Total meat production is projected to decline next year. In the near term, pork is performing much better than expected. The carcass is up $3.40 or far this week. For today I have no new trade rec. I’m long term bullish.

LIVE CATTLE:

The CPI came out a touch higher than expected but the market (stocks) is not selling off. This is good news moving forward for the beef complex. Odds are high the Fed will stop raising interest rates. The bearish corn report when combined with the wet forecast for the Great Plains is bullish feeders. Look for the uptrend in FC futures to continue. Open interest in LC was up 3,526 yesterday on huge volume of trade reported at 85.1k. There was no major feature in the cattle options market. Look for lower beef production compared to last year to stabilize the wholesale beef fairly soon. Seasonal demand will drive beef sharply higher into late fall. The next cattle-on-feed report will be issued one week from Friday. There’s not been any significant cash steer trade yet this week. Look for a higher trade when it breaks loose. My outlook for today is mixed in the early trade with buying, large buying coming into both markets about an hour after the open. Stay bullish.

GRAINS:

Corn edged higher overnight led by wheat. Wheat is trying to bottom off the supportive world numbers. I’m not a wheat analyst and won’t pretend to be one. However, I’d rate the odds of a major bottom in wheat prices as slim. If you’re bullish corn, betting that wheat will save the day, this is a poor bet, IMO. Moving forward, the corn supply and production numbers likely won’t change much. Ending stocks will stick at 2.2 billion or slightly larger as more demand comes out of the table. The stocks to use well above 15% indicates lower corn prices are necessary. The surprising part of yesterday’s market was the lower soybean board in the face of a 220 carryout. We (the U.S.) appear to be moving to the second fiddle soybean supplier to the world with Brazil number one. They are already talking about another huge Brazilian soybean and corn crop coming down the pipe. Hold the soy calls. Regarding the Oct corn 480 puts, I recommend putting half of them up for sale at 12 cents. If/when Dec corn closes under 470, the bullish trader will be forced to give up.

• Place orders to sell up to half of the Oct corn 480 puts at 12 cents.

For a free 30-day trial to the evening livestock wire send an email to: dennis.smith@archerfinancials.com and be sure to follow @denniscattle on Twitter.

Learn more about Dennis here

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. This report is a solicitation.