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Friday, October 14, 2022
GRAINS:
If you’re harvesting corn and placing it into storage, I highly recommend the bearish option strategy we executed yesterday; buying the Dec corn 690 put/selling 700 calls on either side of even money. At this moment, you’d have to pay a penny to execute. Export demand for U.S. corn is very poor. The weather is improving in South America. China has indicated a reduced demand for feed grains and the fact that pork prices are now soaring in China is possible evidence that less feed demand is close to the truth. The majority of harvest is yet to occur and low water in the river systems and a possible rail strike will only slow grain movement. Lower export demand and lower feed demand (down 440 mmb) is being enhanced by historically high prices. IMO, lower prices are necessary which, of course, is not a popular opinion. I recommend holding the Nov soy 1420/1370 put spread into expiration one week out.
- In Dec corn options, buy 690 puts/sell 700 calls near even money. Risk to a close in Dec futures above 708.
LEAN HOGS:
Houston….China has a problem. Pig prices in China are surging higher with the latest quote 27.66, up .74. This is the carcass equivalent of $227. The current U.S. lean hog index stands at $92.67. Do you think China can afford to import U.S. pork? Weekly sales were respectable (not huge) at 29,900 MT with Mexico the largest buyer (8,100 MT) followed by China taking 5,900 MT. Shipments were also solid at 28,500 MT with pork moving to Mexico, China, Japan, South Korea and Canada. Cash was not reported out west yesterday due to confidentiality. What does that mean? Cash is almost always lower on Fridays. In my opinion (IMO), Dec, Feb and Apr are too far under the index and the summer hogs are not holding nearly enough premium to the index. Look for a firm to higher open followed by a sharply higher close. Aggressive traders can buy the open and risk 100 points. The deferred contracts are forming head and shoulders bottom formations. Open interest edged up by nearly 1k yesterday.
LIVE CATTLE:
I’ve learned that there was trade in the south Wednesday afternoon at 145 that was not reported Wednesday but was noted at some point yesterday. So, with the moderate volume yesterday and confirmation that IA traded 3800 head yesterday at 147.50 and $232, the negotiated volume for this week now stands at 38.2k. Additional trade is expected today. Will it occur at higher money? Open interest in LC jumped by 1,344 cars yesterday. The large increase occurred in the Jun contract. OI fell nearly 1,300 in the Oct with total here at 8,595. Zero deliveries to date with the oldest long partly though Mar 24. My favorite play this week is adding to the bullish positions through the Nov LC 148/152 call spreads. Add at 120 points and plan to take into expiration. I believe there’s a high chance of gleaming the full 400 points profit out of this play. There is no margin risk here, just the premium paid. Nov LC options expire Nov 4 or 22 DTE. If I’m correct, where else can you collect more than three times your money in 22 days?
- Step into the Nov LC 148/152 call spread at 120 points.
For a free 30-day trial to the evening livestock wire that includes the Morning Livestock Report and the Midday Pork and Beef Update, send an email to dennis.smith@archerfinancials.com
