Written Commentary
LEAN HOGS:
Open interest in lean hogs was up 2,215 on Friday. Funds continue to pour into new length in the hog market. The COT report confirmed that funds added more than 14,000 contracts in the latest week and they’re now holding more than 48,000 longs. The funds are on-board the trend and they’re in for the long haul. The calls I want to buy, the Apr 88 calls settled at 197 Friday. I recommend liquidating all remaining 86 calls early today. I’m expecting some sort of pullback. If a break never happens, we still own the 84/90 call spreads. Chinese authorities announced that their sow herd stood at 40.67 million on Feb 1, down 6.9% from last year. They also reported that hog slaughter during Jan surged by 28.6% vs last year. It seems they’re still liquidating aggressively. Last week’s hog kill was slightly over the early week projection, but weights are dropping. I contend we’re experiencing two shifting key variables. Demand has increased and, IMO, there’s been an overcount in hog numbers.
- Liquidate all remaining Apr 86 calls on the open today.
- Buy Apr LH 88 calls at 120 points ($480). (nothing done)
LIVE CATTLE:
First off, open interest on Friday’s LC trade was up 3,227. Funds are adding to their length. The COT report confirmed that funds added 8,000 contracts in the latest week, and they now hold over 50,000 long positions. The peak of fund length from last Sep was just north of 130,000 cars. The fundamentals for today’s market are the FACT that packers paid up to own cattle last week. I have the negotiated volume at 41.6k with packers blinking first and doing so ahead of the on-feed report. The second key variable is that the on-feed report was bullish and not bearish as most believe. The report showed the largest decline in 0n-feed inventory for January going back to 2013. Yes, the on-feed math is changing quickly as I suggested that it would. In addition, choice beef has moved north of $300. IMO, it won’t trade back below $300, for any length of time, for months and possibly years. The historic slide in corn prices is very bullish toward feeders. By the way, Mar feeders are poised to test and likely penetrate my first measuring target of 255 today. Does this mean the move is over? Absolutely not. Stay bullish. On weakness today, add to the deep out of the money Aug and Dec calls. My next play will be buying June futures with a posted sell stop.
- Buy Aug LC 205 calls at 30 points ($120). (load the boat) (filled)
- Buy Dec LC 230 calls at 20 points ($80). (load the boat) (filled)
GRAINS:
No bottom in sight. The COT report showed that funds added more than 26,000 short corn positions and they’re holding a record large short position that is north of 340,000 contracts. Funds added 2,000 soy shorts and they’re now short 136,000 soy contracts. The charts have been destroyed. Will a bottom be formed just ahead of or just after FND? Possibly. I’ll entertain the idea of buying some calls but I won’t be betting the farm. It would be normal and seasonal for a bottom to be formed soon. Stay tuned. We harvested all profitable bearish positions last week. My long-term downside target of $4.00 has been reached.
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