March 8, 2010
US cattle traders watching record open interest
Cattle futures traders were keeping an eye on the record open interest, but few appeared to be overly concerned that other traders would sell their April positions and drive prices lower.
The 233,253 contracts that were open in the April and June live cattle contracts at the close Thursday (Mar 4) represented seven million head of cattle or more, analysts said. This is nearly all the cattle available during that period, and many (like heifers) are not deliverable. The market will want to pare the number of open contracts to near zero before the contract expires on April 30.
An analyst said there was ample time for speculators to get out of their contracts.
Some analysts and traders said they were concerned. The buyers were thought to be speculators who had little vested interest in the actual cash market for slaughter-ready cattle. Since these futures-contract buyers were not interested in taking delivery on the contracts they owned, some traders fretted that enough of them would sell outright, either to capture a profit or to just avoid delivery, and that the April contract would sink rapidly.
One trader was so confident that the April contract would not fall that he said now is a good time to avoid speculative short positions. The traders who took these positions are likely to just roll them into another month via spread trades, he said.
Another market analyst said the commodity fund-style trading firms and the money managers bought cattle futures for a reason, and would likely just transfer their ownership into other contract months via spread trades. In any spread trade there is another trader taking the opposite side, so there may be little effect on pricing as the market rolls positions into deferred contracts, he said.
Hog markets got a late-week boost when the USDA announced an agreement had been reached with Russia to ship antibiotic-free pork to that country. There were reports that some firms had already submitted applications to the USDA for export licenses.
Successful companies will have to be able to prove that the pork being exported is antibiotic-free, but many traders said it should not be a stretch for some producers to meet this requirement. They either raise their own hogs or buy them from known producers.
