Tuesday, March 21, 2023
Corn is a tough read at this time. A 75-cent break uncovered Chinese corn demand but the bounce was less than 30-cents off the low. Odds are it will take another move lower in prices to uncover additional demand. Yet the board is inverted and corn basis remains powerful strong especially west of the river. We’re still holding bearish positions. Recommend unwinding all bearish corn positions on a close in May over 640. Otherwise, hold. Bean meal is now trading on either side of the 465 support. We’re holding May meal 460 puts and will continue hold. Wheat prices continue to languish despite the fact that half of the KS wheat crop is rated poor. No other rec.
- Unwind all bearish corn positions on a close above 640 in May.
Open interest in Apr pigs yesterday, on the collapse in the spreads and with fresh contract lows in the Apr, was down over 5200 cars. Open interest in Jun was up 2,215 with total hog OI down 2,672. Open interest in Apr calls jumped for the second day, rising by 1,303. Hog futures are focused on the fact that hog numbers continue to run above year ago levels, on the soft/lower tone in ham prices and off fear generated by the outside markets. While I consider the long-term hog supply situation bullish, clearly, the market is not focused on the long-term. I recommend staying out of the market until we see a weekly kill projection coming in 2% or lower than last year, until hams bottom and until futures clearly display some kind of bottom on the charts. This would include a key reversal and strength in the bull spreads. Until then stand aside.
The funds are exiting the live cattle market in groves. It appears this is being driven by fear. Total LC open interest yesterday was down 5,595 cars with Apr losing 3,210, Jun losing 2,471 and Aug losing 466 cars. Apr through Oct are discount to the cash steer market which traded at 164 last week. One short term negative fundamental factor is active beef imports. Due to the BSE discovery in Brazil, they’re still not exporting beef to China. Instead, they’re pushing beef aggressively to the U.S. market. Exactly why the U.S. accepts beef from Brazil I’m not sure. Regardless, their quota is about three quarters met. The quota should be hit in two to three weeks and then imports will slow substantially. In the meantime, beef packers remain in control. They’re still processing at profitable margins and they’re in control of the cash steer market. The cattle they bought last week at $1 lower, 30% of these were bought with time. Jun futures closed at their lowest levels of the entire year yesterday. Our stops on long Oct futures reside at 16020. I have no recommendations. We’re simply not adding margin risk at this time.
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