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Active Trade in Hog Puts Noted on Yesterday Reversal

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Tuesday October 24, 2017


Total meat in storage stands at the highest levels since Oct of 2002. Theres been a huge build in poultry stocks. Pork stocks do not appear to be a bearish concern, by themselves. Futures stumbled hard yesterday with the outside day/lower close likely significant. Look for downside follow though and look for yesterdays highs to not be taken out. The simple fact of record large production will necessitate lower trending pork prices to keep product from backing up severely. This is an economic logical conclusion in the face of record large pork, poultry and beef production. Trade in the puts is interesting to view. Volume in puts was nearly double that of calls. The most active put traded was the Dec 59 put followed by the 60 put. This is logical. However, there was active volume in the Dec 47 puts and someone even purchased 190 Dec 42 puts for one tick. The weekly kill is pegged at 2.533 million pigs. The early call in the cash is steady to firm. Really? Look for a choppy two-sided trade in hog futures likely followed with a lower close.


Live cattle shrugged off the bearish cattle-on-feed report in impressive fashion yesterday. It appears, despite the fact that on-feed inventory is 105% of last year, theres just no glut of finished cattle at this moment. In my opinion the important factor to watch and monitor is the direction of the wholesale beef. Will beef cutout hold up in the face of larger production and fierce competition from pork and poultry? Volume yesterday was active but not huge at 59,000 with open interest up 2,300 cars. New longs, likely funds, entering the market. The funds hold a large net long position in LC and a record large net long in FC. There were no bids or cash trade to report. The show list is smaller but packers can pull on contracts next week. The weekly kill is projected to be 631,800 compared to last weeks kill of 629,000. At the moment we have few expectations and no new recommendations for this market.

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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. In addition, the author of this piece currently trades for his own account and may have financial interest in the following derivative products: (corn, soybeans, soybean meal, soybean oil, lean hogs, live cattle, feeder cattle).

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About the author

Dennis Smith has been a full service commodity broker specializing in grain and livestock trading for over 25 years. Dennis has a wide range of customers, many of whom are grain and livestock producers. Dennis develops and helps execute hedging and speculative strategies in his Daily Livestock Wire which is prepared each afternoon exclusively for his customers.

Dennis grew up in Central Illinois before launching his brokerage career.

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