GRAINS:
Soy traded higher all night against the trend. Look for selling to emerge on the re-open today. That’s been the pattern for weeks, the grains always trade against the trend during Asia and Europe and then resume the trend during the U.S. session. Stay with the bearish soybean plays. I’m neutral corn, not bullish and not overly bearish when prices are hovering just above four-year lows. The function of the market is to grind at low prices, letting the basis and spreads do most of the work. This is how a market stimulates demand, holding prices at low levels for a period of time. Eventually something will develop that will help stimulate demand or force a concern about future supply. In this case, this would be an improvement in the terrible Chinese economy and/or concerns about growing conditions in the U.S. next summer. Stand aside in corn for now.
LEAN HOGS:
Lean hog futures displayed a narrow range on Friday, edging higher with new highs in Feb and Apr. It was another doji pattern in Dec. Open interest surged higher in every hog contract with the total increasing by 4,539 cars. For reference the latest hog index stands at 8396. The hog carcass was up $2.12 last week. The weekly kill, once again, came in below last year which is 5% lower than projected by the Sep hog & pig report. YTD hog slaughter is now only up 1.1%. Yet the value of the hog carcass is up 6%. This demonstrates my long-held outlook that demand for U.S. pork is improving this year. The double punch of improving demand and lower supply than expected should keep the impressive uptrend intact. It’s possible that futures will move to the index, moving as high as 8400. We’re long Dec futures from 7545 with a 76 put for stop protection. I’ll look to exit half of the futures on a test of 8000. For accounts looking to add leverage with low risk, I recommend buying Dec 84 calls at 35 points. Dec options expire 12/13, or 54 DTE.
- Buy Dec 84 calls for 35 points ($140) to add to bullish positions.
LIVE CATTLE:
Open interest jumped in LC by 4,504 cars on Friday. Five new deliveries hit the Oct with the oldest long jumping to Oct 4. If you’re long Oct get out or you’re going to get hit with a delivery notice. Dressed weights continue to soar and they’re record heavy. We’re starting to notice that cow slaughter is not rising this fall. Given poor pasture conditions this is a bit surprising. Cash steer prices last week edged slightly higher, and they’ve been higher for six consecutive weeks. The basis flipped last week with cash now over both Oct and Dec futures. We’re partially hedged and late last week we sold Dec futures for a spec trade. Odds are high, however, that my buy stop at 18810 will be hit and elected today/tomorrow. The beef was up nearly $10.00 last week. Packers are driving the cutout higher through reduced kills into the face of record high retail beef prices. It’s my opinion that this will not end well. It’s a very unpopular opinion.
For a free 30-day trial to the evening livestock wire please send an email request to dennis.smith@archerfinancials.com
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