Monday, December 12, 2022
GRAINS:
Soybeans are lower with meal and bean oil also lower. Factors influencing the selling are rain in Argentina over the weekend and weakness, substantial weakness in veg oils across the globe. Veg oil in Asia is lower and values in Europe are sharply lower. The March soybean oil contract failed to hold support Friday and we bailed out of newly established bullish positions. Corn and wheat, on the other hand are higher as these markets put in war premium with loads of activity in Ukraine over the weekend. Speculation that the port of Odessa was crippled appears to be unfounded, however. I’m expecting the rally in corn to fade when the market re-opens at 8:30. Finally, weather in Brazil is good. They are on the road toward a large crop of both corn and soybeans. Brazil is proving to be a tough competitor for the Midwestern corn and soybean producer. IMO, corn prices will not hold elevated levels going into the next U.S. growing season. My current downside target is 620 basis the March corn. We’ve established hedges for grain producers holding corn in the bin that will be marketed as corn and not fed to livestock. Let me ask; how many years have you been allowed to lock in a marketing window from 640 to 700? Not very many.
- If you’ve not done so already, consider establishing the May corn 640/600p/700c three-way risk reversal at market. (Currently trading around even money to a 4-cent premium outlay.
LEAN HOGS:
Cash was up $2.00 Friday with cutout also higher, rising $3.59 to $88.56. For the week the hog carcass was down .38, so not so good. For reference, the CME lean hog index was last quoted at 8199, down .48 with the 1-day calculation pegged at 8140. Also, for reference, pig prices in China continue to drop like a stone, last quoted at 19.50 RMB/kg. Pig prices dropped 9% from Friday. That’s right, down 9% in one day. On the back spreading Friday open interest was up 1,470. Look for additional selling pressure in the Feb hogs. Feb might even gap lower this morning. My downside target is 8210.
LIVE CATTLE:
On the strong close Friday open interest in LC futures was up 2,753 cars which is a bullish signal. Open interest in the Dec contract stands at 9k. Zero delv posted Friday with the oldest long partly through April 5. The Dec/Feb backed up on Friday to 190 under. If this spread does not perform well today, recommend to just roll out of Dec and into Feb. With the winter storm smacking the Dakota’s hard this week and parts of western NE, Feb might start to gain on the Dec. If cattle are going to get beat-up this winter, the Feb contract could become super-charged. The negotiated volume of trade from last week stands at only 49.3k. Higher prices were paid Friday with tops at 156 in the south and tops at 158 in the north. My sources are reporting that JBS, National and Cargill are short bought starting out the week. Beef was higher Friday which is a pleasant surprise. Now that the Dec seasonal low appears to be in place, we’re now ready to start covering our short call portions of our long-held bullish Apr three-way risk reversals. Yes, I’m bullish. If May feeders happen to back up a couple of days, I’m ready to establish a bullish position in this market.
- Start working orders covering portions of the short calls on the Apr three-way risk reversals.
- Look to roll long Dec into Feb at 120 under. The spread is currently at 190 under.
For a free 30-day trial to the evening livestock wire please send an email to; dennis.smith@archerfinancials.com
