Funds Continue to Buy Hogs

LEAN HOGS:

Open interest in hogs surged higher, again, up 6,696 cars. Total OI stands at 314,700 contracts, substantially larger than LC open interest (283,000). There was active hedging activity noted in puts. June put open interest was up 1,302 with the 107 put increasing by 2,828. Hedgers were rolling up the put strike prices. July puts were up 1,564 and Aug puts surged by 1,598. Open interest in Aug 80 puts was up 1,732. But the active hedging does not mean prices are going lower…they’re likely not going lower, but higher. Cash was called sharply lower yesterday, and it was down only .50. Cash is called higher for today as packers are already looking for hogs for next week. The fact that one packer was dark yesterday for eclipse viewing is a total joke. A greedy packer would never do this unless they did not have enough hogs lined up to kill this week. The carcass is now above $100, and it should stay there (above $100) for a long time. We exited all remaining Apr 88 calls yesterday from 160 to 180. I recommend taking the 84 calls and 84/90 call spreads into expiration. For those holding 90 calls, I recommend selling out half of your position at 60.

• Exit half of all 90 calls at 60. (purchased at 30)

LIVE CATTLE:

Funds continue to exit live cattle. Open interest was down 3,953 cars. The trade is still scared of the uncertainty surrounding the bird flu situation. Open interest in Jun puts was up 3,902 with the 160 put increasing 816. Someone is actively buying Jun 160 puts with cash at 184-189. Now that’s what I call scared. Bird flu has never had a severe impact on poultry demand and, IMO, it will NOT have a severe impact on beef demand. Beef prices surged higher yesterday with the choice cutout below $300 for only two days. It won’t go back down below $300, IMO. Feeders have become a casino. Open interest was up 130 cars on volume of over 23k. The volume was nearly half of total open interest. What a joke of a market. Stay out of this market is my advice. Cash feeders were sharply lower at OK City yesterday, down $8 to $12. My only other recommendation is to work buy stop orders in Dec LC above the market to trigger new long positions on a recovery. By the fourth quarter the on-feed inventory will be much tighter than the current inventory and the heavy weight problem should be resolved.

• Consider working orders buying Dec LC at 18190 stop.

GRAINS:

Grain news is quiet. Corn is 5% planted, mostly in TX. Heavy rains are falling in the south delta region of the country. The 6 to 10-day shows a vast warm up in the Corn Belt with above normal precipitation for the Belt. A good forecast for planting corn and soy in moisture. Palm oil edged higher. Soybean oil needs to hold here. Corn basis is firming up, telling me to expect a rally on the board. Volatility has come down dramatically. Options are cheap. I might look at buying June corn calls to take through the grain report and into the planting season. Stay tuned. Long-term I’m bearish corn.

• Prepare to buy some corn calls to hold into the planting season.

>>For a free 30-day trial to the evening livestock wire please send an email to: dennis.smith@archerfinancials.com 

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