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Wednesday, October 26, 2022
GRAINS:
The battle between strong crush markets and excellent domestic demand versus lousy, totally lousy export demand continues in force. The result is a sideways corn market and a soybean market that juts back and forth with no follow through in any direction. Of course, the bearish traders believe they are dead right, and the bullish traders believe they are dead right. There is no confusion regarding my opinion, but we have buy stops in place on the short Nov soybean futures position. I worry about the clear advantages that South America has regarding corn and soybean production. Brazil owns the soybean market and China, by far the largest consumer of soybeans in the world, favors doing business with Brazil over the U.S. I’m not sure how anyone can argue this point. I’m looking for a test of 660 in Dec corn and looking for a weekly close below 1367 to signal the start of another leg down in soybeans. Consider the following strategy to prepare for another possible leg downward in soybeans.
- Establish the Dec soybean 1380/1330p spread for 12 cents ($600). Dec options go against the Jan soy futures and they expire four weeks from Friday.
LEAN HOGS:
The hog carcass was down $3.44 last night and I’m expecting this to weigh on futures on the opening bell. Look for a quick test of yesterday’s session low (8725). It’s my opinion that Dec hogs are all dressed up, after their huge rally, with no place to go (but down). For reference, the CME lean hog index stands at 9481, up .14 on the latest quote and prices continue to edge lower in China, last quoted at 27.21, down .30. Long term I’m fundamentally bullish summer hog futures based upon the expectation that eventually China will be forced to come into the U.S. pork market amid declining global production. In the short term, however, I’m bearish off the fact that the Chinese have not yet entered the market and futures are over-priced in the wake of the recent huge rally sponsored by the funds. There’s no urgency, no spark in the product.
- For spec players, establish the Dec LH 85p/90c risk reversal. Risk this position to a close in Dec futures over 8930. (filled yesterday at a 25-point credit)
LIVE CATTLE:
LC futures pulled back after Dec posted a fresh contract high early yesterday. Folks, it’s not a top. Open interest was up 6,228 on the action. There were only 100 head traded yesterday in IA at 153, up $2 from the 151 trade on Monday. With the show list smaller, with beef soaring higher and with the kill edging lower, supporting the beef, look for a higher cash steer trade this week when it develops. We get between five and ten calls each day asking; how do I add to the cattle position? Yesterday we added some risk reversals in the Nov FC options. For today, I highly recommend adding some Dec LC call spreads. These will effectively replace the Nov call spreads we own that will expire next Friday. The beauty of these call spreads is that you’re not adding margin risk to your trading account. Look for major support in the Dec LC at 15240.
- Establish the Dec LC 154/158 call spread for 100-110 points.
- Establish the Nov FC 180c/178p risk reversal. Nov FC options expire Nov 17, or 24 DTE. IMO, given that the call is within 100 points of the market, this is plenty of time. The initial margin to hold this bullish position is $1,800. (filled at 25 points)
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