Tuesday October 29, 2024
GRAINS:
Wheat is higher with the first ratings of the winter wheat crop not good. The crop is rated just 38% good to excellent against a historical average of 53%. However, good rain is expected in the Great Plains and Midwest next week. Soy is higher but leaking back toward unchanged and corn is slightly higher. Harvest is winding down quickly. Corn basis is firming nicely in the Corn Belt as producers lock a record crop away in the bin. We’re now holding long-term bullish positions in Sep corn options for our livestock producers, bearish short-term positions in Jan soy options for our spec traders and a bullish position in May wheat options. I’ve decided to take all of these positions through the election next week. Odds are high that Trump will be the next President and concerns about trade wars and increased tariffs with China will likely weigh on the soybean market.
LEAN HOGS:
Open interest in hogs was up 5,259 cars. The funds continue to pour into the market with the commercial and hedger continuing to get run over. Yesterday the pretense by the pork packer finally ended. They reached aggressively for hogs that simply are not there. Cash was up $6.00. Cutout was up $3.00. The overcount by the USDA is huge and by far the biggest miss in many years. My analysis of hog weights and space in the system predicted this miss in late August. Perhaps today is the day that futures catch up to the index, meaning Dec LH may close 300 to 400 higher. For reference the index is quoted at 8555, $5 over the Dec. We bought Dec 84 calls a week ago yesterday for 35 points. I recommend only selling a small number of these at 80, hold the rest. Dec is headed to where Oct when off, 8400. Feb is likely headed north of 9000. There are no hogs. This week’s kill is projected to come in at 2.640 million, down 1% from last year.
In the option market open interest in Feb calls was up 1,063. Specifically, open interest in the Feb 90 calls was up 852. In futures, open interest was higher in every hog contract. Technically, impressive stuff and bullish.
LIVE CATTLE:
Open interest in LC was up 4,012 with funds still adding to their net long position. They may be approaching a net long of 100k. Oct LC goes off Thursday. There’s 820 in open interest here. The WSJ reports that sales at McDonalds restaurants in the infected states fell 10% in the wake of the E coli outbreak. Overall sales were down nearly 5% during this period. This is a big hit for the beef complex and history indicates it will take time for a full recovery.
Futures closed higher yesterday but most active Dec did not take out last week’s high at 18950. Notice how flat the cattle spreads are. This is alarming from a bullish standpoint. This tells me that I’m most likely correct to be concerned about demand for beef moving forward. We know almost for sure that numbers will tighten as we move forward into the second half of next year. But there’s no power in the deferred contracts. The cutout held yesterday but my sources believe that as slaughter increases the cutout will soon top. This week’s kill is projected to come in at 620+.
I’m not doing anything heroic in LC from a spec standpoint. We’ve missed this entire upward move. I’m not going short for the spec but I’ve advised partial hedges for producers. As a note of caution, many are not hedged.
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