Tuesday December 12, 2023
GRAINS:
Overnight grain news is quiet. The so called “drought” in Brazil has been grossly over-billed. They’re still likely to harvest a record large soybean crop. The crop will be late and yield may be down but due to expanded acreage, the size will be huge. Brazil is a monster. Corn production may suffer some real losses if the second crop sees reduced acreage. I’m bullish corn but I’m recommending edging out of the bullish soybean three way, taking a small loss. Specific details are in the evening wire.
LEAN HOGS:
I’ll keep digging but I’ve never heard why last week’s kill was revised down by 13k. I’ve never heard why yesterday’s kill came in more than 20k lower than expected. Margins improved and they’re highly profitable. The cutout was up .95 with cash down $2.00. There was no meaningful activity in options yesterday. Lean hog open interest was down 1,185 cars. IMO, futures are probing the low end of the range and futures will likely hold and eventually roar higher. I’m counting on solid evidence of herd liquidation and on improving demand for U.S. pork both on the domestic front and on the export front. For today, I recommend buying Feb calls. We own the Dec 70 calls (bought at 15 points) which expire Thursday.
- Buy Feb LH 72 calls at 140 points, risking 70 points.
LIVE CATTLE:
LC closed higher for two consecutive days for the first time since Nov 20 or so I’m told as I did not take time to analyze the chart. I knew it had been a long time. Open interest edged lower, down 1,217 cars. There was nothing special in the options trade that I could see. The show list is up 10k in TX but down 2k in KS and down 21k in NE. FC saw another high-volume trading session more than 20k versus the total open interest that is just north of 50k. Crazy. Bellies with four legs. I need to see a close in Jan FC above last week’s high to convince me of a lasting low. Yesterday’s close in Feb LC, well above 16670, tells me that LC futures have put in the December seasonal low. I’m bullish. We’re holding a bullish three-way risk reversal in Oct LC options and last week we added a call spread in Apr. If futures chop a couple of sessions, I’ll look to buy some Feb calls outright risking about half of the premium paid. Placements on the on-feed report that comes out one week from Friday could be down as much as ten percent. Yes, it appears that the massive liquidation in LC and FC futures may be history. The key is in the beef. This was discussed yesterday at length.
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