GRAINS:
Corn has gapped lower the last two sessions. A close below 480 in Mar will confirm a top. Soybeans are lower despite the fact that bean oil is currently higher. Meal is testing support, again, and will likely penetrate support today. Trump tariffs are now in play against Mexico, Canada and China. Don’t look for Mexico to stop buying corn or pork, our primary concerns. China does not want to buy soy from the U.S. anyway. However, the new tariffs could spur China to buy more U.S. corn and soybeans. Why? Because China has very little leverage currently. The Chinese economy is in the tank. They need their export market to stay strong. They could easily switch to buying U.S. commodities at the expense of Brazil to make the new tariffs go away. Canada and Mexico have very little leverage. They’re in trouble with Trump and they’ll eventually do what he wants, seal the boarder. I’m not sure what will happen today. A close in Mar corn below 480 signals a top. I need to see a close in Mar soy below 1020 in signal a top here. Hold all bearish positions for now.
LEAN HOGS:
Trump tariffs have arrived as promised. Could anyone be surprised? Canada and Mexico are not in a good position here. They have very little leverage. The combined GDP of Canada and Mexico is only one-seventh of the U.S. If the tariffs stick longer term, it will push both economies into recession and force the Canada dollar and peso lower. Eighty percent of Mexican and Canadian exports come to the U.S. They simply cannot allow this to stick. They’ll be forced to appease Trump, to give him what he wants. When Mexico slapped a tariff on U.S. pork in the first Trump administration, it slowed their U.S. pork imports only fractionally. Don’t look for Mexico to stop buying U.S. hams this year. The hog supply-side fundamentals are bullish, very bullish. Last week’s kill was down 4.8% from last year with the YTD hog kill running down 7.7%. Futures rallied Friday but then pulled back in nervous trading late. Open interest fell 1,233. There was large activity in Apr puts with open interest up 2,794. The Apr 80 put saw open interest increase 1,458. I also noticed that someone moved into some deep out of the money calls. Open interest in July 126 calls was up 244, the Aug 104 calls were up 250 and the Oct 90 calls were up 100 with the 92 calls up 107. Frankly, I’m not sure what will happen today. I’m bullish.
LIVE CATTLE:
Friday’s higher close occurred on slightly lower open interest, down 186 cars. FC open interest was up 441. There was hedging noted in LC Apr puts but nothing else caught my attention. Cash rallied in the south last week to 208, up sharply, whereas the north traded mostly steady at 210. The beef is expected to trade lower during Feb.
The inventory report contained meaningful revisions from last year. Beef cows and heifers that had calved in 2024 was revised down by 926,000 head. Heifers for beef cow replacement was revised down by 142,000. Yet, in the face of this, steers 500 pounds and over for 2024 was revised up 170,000 and calves under 500 pounds for 2024 was revised up 203,000. This last number helps to explain how and why placements last year were consistently larger than expected. The data hints at a huge increase in calving rate as older cows are now dead and gone. The fact that beef cows and heifers for beef cow replacement are both down 1% indicates the beef herd continues to contract.
Last week’s kill was 600k and this week’s kill will likely be under 600k. It appears that packers did not get enough cattle bought last week. Going into Friday the negotiated volume was only 35k. Futures remain sharply discounted and I’m assuming this will attract buyers. I’m approaching this market with caution, actively buying the Mar LC 214 calls for 60 to 80 points. We took profits last week on the Feb/Apr spreads. Trump tariffs will not alter the course of this bull market.
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