Looking For Bounce in Hog Futures

LEAN HOGS:

Open interest continues to leak out of the lean hog futures market. OI was down 600 cars yesterday as prices pressed lower and nearly filled the gaps on the charts created by the bullish hog & pig report. I expect these gaps to be filled today on the open. Total OI is now less than 250k. The hog carcass is showing the ability to hold above $100 into the middle of the fall hog runs. Please note that hams are now trading under 50 cents/lb and they’re attracting very large user demand. I suspect that futures are poised to bounce and possibly bounce rather far. Our advice to clients; cover about half of your hedges….today. Weekly export sales were reported at 33,500 MT, up 9% from the 4-week average. Japan, Mexico, China, South Korea and Canada were the large buyers. Shipments were 29,700 MT, down 2%. Mexico, China, Japan, Columbia and South Korea took in the product. It would appear the log jam at the ports is not severely hampering pork shipments out of the country. The news this week included the promise for the port workers to begin working 24 seven. REPEATING, OUR RECOMMENDATION IS TO COVER SOME  (UP TO HALF) OF YOUR HEDGES TODAY.  

LIVE CATTLE:

Sun of a gun; open interest was down 1,752 in LC futures yesterday. Wow. Will the market be able to penetrate resistance on short covering alone?? I suspect there was a ton of packer buying yesterday. The rumor I heard late yesterday was some cash trade occurred and was not reported from 125 to as high as 126.50. I also hear some arrangements were being made to pick these cattle up on Saturday. None of this has been confirmed. The weekly slaughter report, issued yesterday, showed steer weights up 2 pounds (normal) but they’re still down 8 pounds from last year. Weekly beef export sales were pegged at 15,700 MT, unchanged from the 4-week average. Japan was the largest buyer followed by China, South Korea, Taiwan and then Mexico. Shipments were off a bit, possibly due to the port congestion? Shipments were pegged at 15,500 MT, down 11% from the 4-week average. Although the four largest takers of beef last week were all Asian counties, Japan, South Korea, China, and Taiwan. The fact that China is still heavily involved in U.S. beef is bullish. I’m advising some clients to buy feeders today on a slight pullback. We successfully executed the bull call spreads early yesterday before the higher close. I’m unsure if futures (Dec LC) can/will take out resistance on a Friday and on short covering alone. So, I have no predictions regarding today’s action. I’m bullish.

• Buy Jan FC 172 calls/sell 182 calls at 90 points. Work this on a GTC order. (filled yesterday) 

GRAINS:

The overnight bounce on the grain board is led by the soybean oil. Palm oil futures closed higher overnight with cash palm prices also higher. This occurred despite news that Malaysian palm exports were down 16% in the first half of Oct. Rapidly rising crude oil prices remains a hugely supportive feature as well as the news this week that India dropped import duties on veg oils. Everyone is concerned about food price inflation (except the U.S. Federal Reserve). Soybean oil always trades at a premium to palm oil. However, over the last several weeks this premium has narrowed dramatically. This fact should support bean oil in the days ahead. Specifically, looking at the Dec bean oil chart, I see an irregular head and shoulders bottom formation. A close over 6200 will confirm the formation and target prices to 7000. Corn futures are rising which I find interesting going into a huge harvest weekend. Producers are not selling the crop but instead socking it away in the bin. Basis levels continue to firm up. Higher prices are necessary to shake corn loose in the country. Still, unless there’s a huge Chinese purchase that is announced soon, I consider the bullish story in corn dead and gone. Given a move to 540 in the March and we’ll start unwinding bullish positions. There is no bullish story in soybeans and there has not been one for several months. I still consider the wheat fundamentals bullish and we’ll hold our bullish call spreads. I bought Dec wheat this week and was quickly blistered to the tune of ten cents. So, I’ve been weaned of trying to be a wheat trader. I’m looking for a strong close in the Dec bean oil today.

• A CLOSE ABOVE 6200 IN DEC BEAN OIL TARGETS PRICES TO 7000. 

For any questions, 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.