By Dennis Smith
312-242-7905
Friday June 3, 2022
GRAINS:
The impressively sharp rally in soybean oil prices yesterday was fueled by talk of increased blending mandates and talk of reduced production out of Malaysia and increased exports out of Malaysia. Maylasia is the world’s second largest producer of palm oil. Indonesia is the largest producer and they’re currently restricting exports to contain prices domestically. At this time of year the sole focus of the corn and soybean futures should turn to the weather pattern. To prevent a sharp rally, IMO, the weather pattern must be perfect. My sources tell me the La NIna remains in place which typically means a dryer than normal Midwestern summer. I remain bullish on corn and soybean oil.
LEAN HOGS:
China is back into the U.S. pork export market. Export sales were pegged at 31,900 MT, up 15% from the 4-week average. Mexico was the largest buyer, booking 13,000 MT but China was the second largest buyer of U.S. pork last week, booking 9,000 MT. Pork shipments were pegged at 31,200 MT, down 4% from the 4-week average. Pork was shipped to Mexico, China, Japan, South Korea and Canada. Cash hog prices were mixed yesterday but a new cash top was posted at $1.20. The cutout advanced $2.00 with the carcass up nearly $6.00 this week. The jump in the carcass is just what the doctor ordered. Open interest in hog futures was down 909 cars yesterday. Scary. As stated clearly yesterday in the morning comments, I need to see July close over 11360. Yesterday’s carcass quote was a new high for the year. With clear evidence that China is back, the one-two punch should be good enough to drive the board higher and through resistance. No rec.
LIVE CATTLE:
The surge higher over the past two sessions in LC futures has been largely fueled, IMO, by the re-opening of Shanghai. The pent-up demand after about 8-weeks of lockdown will be huge. The job report issued today, showing larger job growth than expected is also friendly toward beef consumption. Open interest was down 660 cars so that information is not conclusive either way. The negotiated trade so far this week is 64.3k with prices generally steady to slightly lower than last week. Cash trade in the south has been active compared to the north with initial trade at 135 but later trade up to 136. Summer futures remain discount. The actual slaughter report issued yesterday showed a huge beef cow kill of nearly 83,000. This is the largest weekly cow kill going back to December of 2011. Through May 20, the Y-T-D beef cow kill is up 15% from last year. This appears to be much more than just drought induced liquidation. Equity stressed operators appear to be liquidating cows for cash. Regardless, the beef manufacturing ability is being crippled. Beef production next year and the year following will drop like a stone. Currently, the supply of animals outside the feed yards is likely record low. Thus, the bottom in feeders that I’ve been clearly discussing. Beef export sales were sluggish at 17,900 MT, down 17% from the 4-week average. Shipments were 19,200 MT, down just 1%. China was the second largest buyer and third largest shipper. After two sharp upward moves, look for futures to likely pull back today. We bought April LC yesterday at 15400 to re-enter the long side of the market.
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