LEAN HOGS

Strongly recommend that producers and spec traders be prepared to sell a rally today in lean hog futures. Volume of trade in futures yesterday was active at nearly 70,000 cars. Open interest was lower in the Oct and Dec contracts but not sharply lower. Short covering was definitely a feature of the trade. The back end rallied and produces need to pay close attention to the back end and prepare to sell. The hog & pig confirmed that the industry remains in expansion mode and there’s no reason to suspect a meaningful bottom in hog futures at this point in time. The report also put into play the high likelihood that slaughter capacity will be challenged at some point this fall. Last week volume surged in the Dec 32 through 44 puts with the Dec 40 put attracting the largest increase in open interest. Yesterday the Dec 30 puts led all hog options in volume of trade. Volume in the Dec 30 put was 1120 and open interest increased by a like amount. Thus, either a packer or a fund put $45,000 to work which will pay off greatly if we get into a capacity problem.

I started selling hogs when the market opened yesterday and have sold some more today! For a bearish report they sure look strong in reality. I am not nearly as optimistic about my position as I was yesterday. I am prepared for a wash-out and it might be ME!

Dewey