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Thursday, February 23, 2023
GRAINS:
The outlook numbers are out with no major surprises. The USDA is looking for about 2.5 million more acres devoted to corn production with a trend line yield of 181. This would produce the second largest crop ever. It’s interesting that their projecting feed use to be up 6%. How and why? Due to sharply lower prices. They also project an increase in exports (due to lower prices) and they’re keeping the ethanol grind unchanged. Elevated corn prices are about to go away. Corn basis in the Midwest has weakened over the last two days. Watch the July/Dec spread closely. This market is a house of cards, IMO and ready to topple. We purchased May soybean meal puts yesterday. I’m bearish.
- Buy May meal 460 puts at market. Filled yesterday at 820. Risk half the premium.
LEAN HOGS:
After reading the livestock outlook quickly, I disagree with the USDA in that they’re still projecting higher pork production than last year. This outlook I simply believe will prove to be inaccurate. The outlook does confirm lower total meat production for the first time since 2014. A decline in total meat production is very rare. For years poultry production grew by 4% per year. Chinese pig prices are on the move…higher. Prices are up 7.2% week over week and up 27.75% year over year. Open interest in hog futures was down 1,642 cars on volume of trade reported at 50.1k. The April hog contract saw a decline of 3,000 cars. I’m expecting a rebound in futures today. IMO, April hogs will not spend much if any time below 8600. We’ll see if I’m correct. Our positions are in place and I’m not adding right now but waiting for some solid confirmation that I’m indeed correct about this market turning higher, turning strong. Export data comes out in the AM.
LIVE CATTLE:
On futures volume of 55k live cattle open interest surged higher by 7,855 cars. The largest rise occurred in the June contract. This is impressive stuff. Feeder open interest surged by 2,198 as this market finished strong and settled just under key resistance levels. Look for an upside breakout today as the feeder trade digests the corn outlook numbers. Lower feed prices are on the horizon. In overnight news Brazil has halted beef exports to China. This is part of the protocol as defined between the two countries. So, this is not a major surprise to the market. Some sources overnight reported that China slammed the door on Brazilian beef. This is simply not the case. This is the normal protocol. Results from the lab in Canada are not back yet. No one knows how long the suspension in beef to China will last. The story is bullish toward live cattle prices but it’s also been in the news since Monday. My first thought was to cancel resting orders to exit our Apr 156 calls at 1050 and out 158 calls at 850. I’ve decided against doing this. I’m looking for a higher open but not a sharply higher open. I want to take profits. The big move that’s about to unfold is in feeders. A close in Mar above 18875 signals a move to 200. The bearish outlook for corn prices should be the trigger, the spark to bring additional buyers to the market. Look for a higher cash steer trade when it occurs either today or tomorrow.
- Look to take profits if Apr LC futures approach 16700.
