Tuesday November 28, 2023
GRAINS:
As corn pushed into fresh contract lows on what was thought to be fund selling, open interest was down over 31,000 contracts. So, it was not so much new fund selling but longs giving up and getting out ahead of FND. Perhaps the funds are done adding to shorts. Soybeans are higher early today and led by bean oil. Wheat, well, forget about the wheat market. My sources indicate that much needed rain is occurring in N. Brazil, but amounts are well below normal for this time of year. My sources, however, point out that improved moisture is expected on or about Dec 4th. If this pattern, after early December does not improve, I’d then expect soybeans to shoot higher to sharply higher. I’m bullish corn for the first time in a year. Hold the bullish positions.
LEAN HOGS:
Open interest edged higher in hogs as all contracts but the Dec moved lower and through support. Total open interest was up 2,490. Put open interest was higher yesterday with Apr puts up 1,216. Specifically, the Apr 42 put jumped by 1246. Jun LH puts were up 522. But cash was higher and cutout was sharply higher as reported last night. In addition, the 640-report indicated excellent export sales occurring last week dominated by pork loins. The fact is that the carcass simply does not crater despite heavy production. This week’s kill is projected to be 2.638 million, up more than 2% from last year. I’m not entirely sure but this might be the largest kill of the year. The cutout is moving higher than the previous three years at this point in time. Cold storage stocks are not heavy. Bone-in ham stocks are record small. I would not be short this market but at this time I have no specific trade recommendations.
LIVE CATTLE:
The negotiated trade has been light for three consecutive weeks. I heard that the show list was smaller but I can’t verify that as of this moment. Packers need to buy cattle. The COT report shows the funds long less than 40,000 cars, which is down from over 120,000 at their peak. After the last four sessions, they might be completely out of length in LC. The report indicated they were now short feeders. The rumors regarding huge selling by third party underwriters of the LRP insurance policies has not been verified but it’s not been proven inaccurate either. Open interest in LC futures was down over 6,200 cars with OI dropping in the first five contracts. Last week’s 5 area average cash steer market was $176.70 with Dec futures closing yesterday at 16877 and Feb at 16882. Such a strong basis is very rare in LC at this time of year. Simply stated, futures are undervalued relative to cash. The CME is responsible for this carnage by allowing the algo traders to move this market complements of the huge daily range of trade allowed. Because there is no demand problem, the selling has nothing to do with the fundamentals. It’s all about momentum, keep the ball rolling and in this case keep it rolling downhill. My only recommendation is to margin up and hold the bullish Oct LC three-way risk reversal. This market will recover.
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