September 22, 2008

   

CME lean hog traders trim spread by 22 percent in latest week

   

 

Non-commercial, or speculative, traders in lean hog futures and options reduced their spread positions by 12,146 contracts, or nearly 22 percent, in the latest week but the cuts were tied mainly to the final three days of the Goldman roll.

 

The changes in traders' positions are for the period ended Sept. 16 and are shown in the latest Commodity Futures Trading Commission's Futures/Options commitments of traders report.

 

Speculative traders in lean hogs added 1,903 longs and 2,140 shorts for a net-short status of 1,973 contracts. The commercial accounts added 933 longs and exited 1,376 shorts to hold a net-short status of 88,159 contracts.

 

The index traders in lean hogs exited 4,437 longs and 1,287 shorts to end 101,399 net long.

 

Live cattle speculative traders added 1,860 shorts and exited 1,443 longs to end the period with 13,427 net short. Commercial traders added 2,160 longs and removed 253 shorts, leaving them 90,808 net short. Index funds dropped 633 longs and 50 shorts, resulting in a 137,735 net-long position.

 

Daniel Bluntzer, analyst with Frontier Risk Management, said cattle futures fell on Tuesday in response to the economic crisis but the biggest declines occurred in the back months. The majority of the liquidity is in the front months October and December, which are more affected by hedging and cash market direction.

 

On Friday, December cattle closed at 103.25 cents a pound, up 152 points from Thursday's close and down 52 points on the week.

 

Bluntzer said there was only a modest drop in the index funds' positions in cattle. If there was a response by traders this week to the economic crisis, it probably didn't begin until Tuesday, and that was the final day for the latest commitments of traders' report. He said next week's report, which will show changes in positions from Wednesday of this week through next Tuesday could show a bigger adjustment.

 

Bluntzer said index traders' total positions are still very large and would have to decline by about 20,000 in lean hogs and 50,000 in cattle to get back to the 2006 average.

 

Rich Nelson, director of research at Allendale Inc., said index fund live cattle positions dipped only slightly compared with the previous week, based on the latest CFTC data, which was nothing out of the ordinary and shows funds continued their general selling program.

 

"There are really not a lot of surprises on the commitments of trader data for live cattle with these numbers coming into Tuesday of this week," said Nelson.

 

Hog commercials have been maintaining their general buying strategy that they've adhered to over the past three weeks while index funds remained consistent sellers, said Nelson. However, he found non-commercial or trading funds only sold off a net of 237 contracts compared with over 7,500 contracts that they liquidated two weeks ago.

 

"The trading funds were slowing down in terms of their big selling, which may be viewed as a positive factor for futures," said Nelson. "On the index fund side, they sold 3,149 contracts and they've been selling for a good five weeks in a row."

 

Nelson points out trading funds sold such a small amount while commercials continue their buying trend, which implies a steady rather than bearish tone for hog futures.