Rumors That A Large Fund Blew Out of Cattle/Hog Spreads
Tuesday October 20, 2020 @denniscattle
CORN AND SOYBEANS:
As clearly documented in my special report, corn prices are not expected to back up very much and eventually they’re expected to grind higher to sharply higher. Harvest is 60% complete. A week from now it will be more than 80% complete and they’re be no harvest pressure at all. Refer to the special corn report for trade strategies which are all still highly appropriate.
Cash is called lower for today in the wake of a mixed cash performance yesterday. The weekly kill remains bullish with the projection at only 2.653 million, down about 1.3% from both last week and last year. The lower cash stems from thoughts that packers are mostly booked for their needs this week. Still, margins are highly profitable. You would think any extra hogs that could be attracted by bidding strong on a Tuesday/Wednesday to expand the Sat kill would occur. If cash remains lower this week then I have to seriously question the integrity of the cash market. The index was last quoted at 7827 compared to the Dec settlement yesterday at 7140. So, Dec futures remain undervalued unless one expects a substantial break in the cash. It’s certainly not going to come from an excessive supply of butchers. Wild action in futures yesterday saw open interest nearly unchanged. There is speculation that a fund holding long cattle/short hog spreads blew out yesterday. We’re bullish the Dec but not adding to positions up here but instead buying puts to shore up our protection.
The price collapse yesterday occurred on very large volume of 86.9K with open interest declining by 1K. Feeder volume was large at 20.8K with open interest up about 130. Look for some additional liquidation type selling early today followed by a bounce, a recovery of some sort. Granted, I’ve been bearish but this was overdone yesterday. The change in the basis is negative toward the cash moving forward. Oct and Dec futures are now discount to cash steer prices. This will, and already has drastically changed the attitude in the country and at the packer level. Funds continue to liquidate the board. There were rumors of a fund blowing out of a large cattle/hog spread yesterday. Picking a bottom is not advised but I do expect a bounce after an initial lower trade. Cash was established at $1.06 and at $165 on a Monday trade. Beef was lower and should be lower again today.
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Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.