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Open Interest Slightly Lower in Hogs, Still Rising in LC

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Tuesday November 7, 2017


Cash hog prices were down $1.00 yesterday and expected to be lower again today. The lean hog index should continue to work downward after having just peaked. The latest index stands at 6895. Dec futures are 400 under. Clearly, the futures market is predicting additional weakness in the cash arena. Weakness in the bull spreads is a negative signal as well as the settlement well below 6500 yesterday in the Dec. Downside follow through is expected. The summer contracts reside at contract highs. Again, were not expecting that to continue but rather an abrupt about face more likely. Look for selling in the Dec on todays open. Volume yesterday was moderate at 43,700 with open interest down slightly. Wow, are the funds done buying and adding to their length in the hogs? NAFTA talks resume in Mexico City on Nov 17th and so far theyve not gone well. Take a look at what the Mexico Peso has done since the middle of Sep.


Live cattle futures closed mostly lower yesterday and similar to the hogs weakness in the bull spreads is a negative signal. The key reversal in the Dec from last Thursday remains intact. The Feb and April contacts posted bearish engulfing patterns which is also a negative signal. But where will the cash steer market trade this week? The cash peaked last week at $1.25 making the cash rally since early Sep a $20 move. If you saw/knew the cash was going to surge $20 in the face of large to record large beef production in tandem with record large pork and poultry production then I have to assume youre planning your retirement party. Congratulations.youve found your beach. For the rest of us, the daily struggle to pound out a living will continue. Volume yesterday was active at 82,800 with open interest rising again, up by 2,300 cars. The beef was higher as packers continue to raise prices in an effort to restore lost margin. Predicting the cash market is most difficult. Many are still calling for higher cash this week. In the event this is correct, on weakness today, we will be lightening up on Dec hedge positions. Were been pinned on short 120 and 122 calls. If these cattle will go to market in the second half of Nov or early Dec, Id cover. Feeders continue to experience strong demand at auction barns. Still, if large placements continue and eventually the deferred LC contracts top, feeders will also top out. My guess is that todays high in the feeders could be about it. Hedgers may consider buying puts on strength today in FC.

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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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