Monday December 18, 2023
GRAINS:
Overnight news in the grain complex is quiet, holiday type quiet. The Nov crush was better than expected and record high. This will continue as more U.S. crush plants come online in 2024. Food for thought is provided by the commitment of trader report. Funds have been covering shorts in corn and wheat but they still hold large short positions. As of last Tuesday, funds were short over 150k corn contracts and short about 70k wheat. I suspect continued short covering will underpin both corn and wheat futures. I continue to see reports projecting increased soy acres at the expense of corn acreage next spring. This will also underpin corn futures. Finally, expectations that the Brazil second corn crop will fall short due to reduced acreage is a supportive factor. The corn chart looks to be etching out a head and shoulders bottom formation. I’m bullish corn. Corn exports are improving.
LEAN HOGS:
OK, Friday’s surge higher in lean hog futures occurred on short covering. Total open interest fell 1,860 cars with Feb losing nearly 3,100. Activity in hog options is increasing with Feb calls up 2,093 and featuring the 78 calls but Feb puts were higher in open interest by 3,242. Apr LH calls were up 1,569 and featured the 86 calls. Traders continue to add deep out of the money summer puts for ASF event protection. We successfully sold a portion of our Feb 72 calls for 290 points Friday (purchased early last week at 140). Hold the remainder. The funds are still short more than 18,000 hog contracts. Feb has dialed in a ton of bearish news, perhaps too much. Will the upcoming hog & pig be bullish. Sow slaughter has been elevated since early last summer. Trade estimates should be released soon. The report is due out Friday at 2:00. Some say that prop 12 is responsible for depleting frozen stocks. Perhaps. But sources indicate that pork consumption in CA is off bigtime due to higher prices. This is as designed. Legislation such as prop 12 is not designed for the wellbeing of animals, it’s designed to reduce meat consumption to fight climate change. It’s a left-wing agenda. Anyone that does not realize this has their head in the sand. I’m bullish but for me to remain bullish I must see meaningful contraction on the hog & pig report.
LIVE CATTLE:
Rain, rain, rain. Grass, grass, grass. Wheat, wheat, wheat. Take a look at the 6 to 10-day forecast. Heavy rain is forecast for the S. Plains. My long-term weather guys are projecting a warm/wet winter followed by a wet spring in the Great Plains. With winter wheat in great shape this portends light placements in the months ahead. Indeed, if Nov placements are lower then I suspect Dec placements will also be lower. With excellent wheat for grazing, placements will likely be lower in Jan and Feb. Get the picture? Cash bids in the south on Friday went from 167 to 170 with some trade starting at 170 at cutoff time. Trade in the north was established at 167-168 earlier in the week. But the most important development last week was two-fold. First, packer margins are profitable and second, they adjusted the Sat kill higher resulting in a weekly slaughter of 649k. This matches the largest kill of the year and it was up 4.5% from last year. Funds are long only 22,700 cars. At their peak last fall they were long more than 130k. Packers will likely go for another large kill this week ahead of the holiday disruptions. They’re making money! We sprinkled our length around the pie. We’re long Feb 176 calls, we’re holding Apr call spreads and we’re holding bullish three-way risk reversals in Oct LC options. The best place to add at this moment is in Oct futures and/or options, IMO. I’m bullish.
Dennis Smith publishes his widely followed evening livestock wire daily. For a free 30-day trial send an email to: dennis.smith@archerfinancials.com
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