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Live Cattle Futures Undervalued


Open interest was up about 1k in hogs yesterday…new selling. However, for today, in this bullish environment, I’m expecting a rally in lean hog futures, possibly a substantial rally. Hog weights are edging upward at 283.9 pounds, up a half pound from last week and last year. The hog carcass was down over $4.00 last night but I don’t ever make a trading decision off one day, or even a couple of days. I’m expecting a recovery in the hog carcass by Friday. IMO, hog futures move higher today. I’ll update my ideas/strategy at midday.


The Aug meat export table will be released later this morning. We know that beef exports in August were huge but we don’t know exactly how much the Chinese bought. I’ll update this information at midday. The Chinese are expected to expand their beef purchases with the ban on Brazilian beef still in place. Cattle futures are anticipating a sea change. This is something I’ve been discussing. Last night’s evening wire listed in bullet fashion fourteen reasons to be bullish live cattle futures. We added a unit of Oct 22 futures yesterday at 13200. This is our third of five units. Zero deliveries. Look for some active cash trade today. Weekly export sales and shipments will be released in the AM. I’m bullish.


Cash palm oil prices soared overnight, again. Palm oil futures closed sharply higher and they reside at record high territory. We’re long bean oil and nailed it. We actually added on the re-open yesterday and now recommend placing break-even stops on those positions (5963). One thing that is occurring is huge Chinese buying of palm oil. The Chinese crush is slowing due to rolling black outs. They fear a shortage of vegetable oil as a result. Demand from India has also been strong. This rally in soybean oil is likely just getting started. The oil percent of the crush is now record high at 49%. So, we’re now crushing soybeans for oil and creating a huge glut of meal. Prices are grinding lower (meal) with open interest sharply higher in meal yesterday. Large commercial traders believe meal prices will continue to decline.

Corn calls…..we are recommending buying the Nov corn 560 calls at 4 cents. We managed to get a slug of these purchased last night at 3 ½ cents when corn prices were lower. IMO, China is very likely to make a huge corn purchase in the near future. Why? Chinese pork producers are losing a great deal of money due to low hog prices and high corn prices. The government needs to convince these large producers to not leave the industry. One way to do this is by forcing corn prices lower. At the same time China is being held to the phase 1 trade agreement. It’s harvest in the U.S. Prices will likely not get much cheaper. U.S. producers are storing the crop with very little being sold out of the field.   Buy Nov corn 560 calls at 4 cents. Premium outlay is $200, expiration of Oct 22nd. 

Questions or comments, contact Dennis Smith at 1-312-242-7905 and follow on Twitter @denniscattle

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.  

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.

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