Tuesday December 3, 2024
GRAINS:
Nice bounce in soy overnight seemingly led by the bean oil. Palm oil was higher overnight. That’s it, I’m not hearing anything else significant. We unloaded our bullish soy position yesterday, taking a small loss. I’m still holding bullish Sep corn option positions for our livestock producers and a bullish spec May wheat option position. The wheat market may have formed a low with the double doji pattern of recent. My sources indicate that Russia is going to run short of wheat to export and to assure that domestic prices don’t jump higher, export quotas will be enacted. Russia has been taking steps to raise the world wheat price. The U.S. winter wheat crop is in excellent shape with KS rated 56% good to excellent compared to just 40% last year. No rec for today unless a livestock producer needs more protection in corn.
LEAN HOGS:
The COT report showed that the funds added aggressively to their length and as of one week ago they were holding a record large net long position in lean hogs, just north of 125,000 contracts. From what I can see, there’s no reason for them to get out. The fundamentals are bullish. Yesterday’s higher close occurred on another jump in open interest, rising by 3,990 cars. Volume was good at 66k and I did not see any significant activity in the options market. The cutout was up $2.35 and moving north of $90, again. IMO, the index likely put in a low yesterday at 8436. We added some Dec 84 calls yesterday at 32 points. From here forward, I’ll only be a seller, not a buyer. My projection is that Dec will go off between 85 and 86, allowing us to reap nice profits on our arsenal of calls. My recommendation is to stay bullish but no more buying of the Dec calls. They expire one week from Friday, Dec 13. Finally, Smithfield continues to whittle down their pork operation. They just sold 150,000 sows to Murphy Farms. Last year they closed 26 farms in Utah, 35 farms in MO and closed a plant in NC. Keep in mind this transaction does not reduce pork output, but some would argue it’s bullish because it reduces the number of company owned hogs by Smithfield, increasing competition for open market hogs.
- On a test of 8400, I recommend exiting some 82 and 83 calls. On a test of 8500, unload more calls including some 86 calls.
LIVE CATTLE:
Upon reflection, my guess is the sharp break in feeders yesterday was triggered by the news of the Tyson plant closing. Tyson announced they’re closing their beef processing plant at Emperia, KS in February. This was a mistake because this plant is not a slaughter facility, only a processing plant. They stopped killing at this plant in 2008. Other than slowing the chain speed and controlling throughput, closing beef plants is about the last tool in the packer toolbox in an effort to stay profitable. But closing this plant will not impact the packer demand for live cattle. It does not reduce slaughter capacity. Someone made a big mistake by chasing headlines. Look for a full recovery today. The Dec/Feb closed into new highs confirming that the cash steer market will likely trade higher again this week. The beef is still rising. Funds are still long and adding although open interest yesterday was down 3,054 cars but up 941 in feeders. Cash feeders at OK City traded higher, up $3 to $6 yesterday. I’m bullish based on my outlook for supply to change (decline) drastically in the months ahead. Look for placements to drop like a stone. Contributing to this outlook is the fact that the Mex border remains closed, and sources suggest it will remain closed for weeks. This year the U.S. has been importing on average 94,000 feeders from Mexico per month. Find a way to get long.
For a free 30-day trial to the evening livestock wire send an email request to; dennis.smith@archerfinanicals.com
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