Lean Hog Futures Volume Surged Higher

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Thursday March 8, 2018


April hogs missed filling the gap on the chart, going back to the end of August, by 7 points. They surged into the close actually reaching unchanged just prior to the 1:00 close and settling down 40. Volume was huge at 81,800, or the largest daily volume since the contract high was put in on January 10th. With the Goldman Roll in effect, total open interest was down by just 345 cars. So a massive change in ownership occurred. The volume in the options market came to life after more than four sessions with volume under 5,000 in calls and puts. Yesterday call option volume surged to over 10,000 with put volume reported at 7,100. In related news, the Trump administration is exempting Canada and Mexico from the metals tariffs until they renegotiate the NAFTA trade deal. Consider this friendly news for lean hog futures especially if part of the recent selloff was tied to tariff fears. The cutout took a hit yesterday but pork is cheap and not expected to decline substantially. Weekly export sales were down 17% from the 4-week average with shipments down 5%. Later today well get a look at monthly exports. We were buyers of April calls and June calls yesterday.


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Cash steer prices continue to trade at $1.26, steady to down 1 cent from the bulk of trade last week. Feedlots are losing leverage despite the fact that finished supplies have not yet started increasing. This is occurring mostly because feedlots are full and end users are fully aware of what is about to happen with production. Yesterdays rally was tame in comparison to Tuesdays rally. Neither rally was able to hold. Weekly beef exports were good, up 31% from the 4-week average. Shipments were up 1%. Monthly export data comes out later today. Our guess for today is another two-sided trade with the meat supply/demand table showing another increase in total beef production and futures likely closing lower and challenging if not penetrating support. On 100 to 150 rallies we continue adding to summer hedges. March feeders, eventually, should test key support at 14000.

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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).