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Tuesday, January 24, 2023
GRAINS:
Nice bounce in corn, soy and wheat futures overnight. The higher trade is allowing our orders to get filled as penciled out below. Risk on this new bearish corn position is a close over 695. I’m not picking up much in the overnight news. Everyone is watching the meal market which is loaded up with fund length. The daily chart posted an impressive doji pattern yesterday with a bullish look. I’m not trading this market, just watching. I’m bearish corn.
- Establish the May corn 640p/710c risk reversal. Cover this position on a close over 695 in May futures. The initial margin is $1,800. (filled overnight paying 1 cent)
LEAN HOGS:
Apr hogs staged an inside day yesterday whereas the Jun probed into new lows before finishing slightly lower but 65 points off the low. Open interest was up 1,392 in the hogs on light volume reported at 37.2k. I have no conclusions from this data. The cutout has edged higher for four consecutive days. Futures have not noticed this yet. The weekly kill is projected to come in at 2.518 million, down just under 1% from both last week and last year. Basically, the kills should start trending lower from here forward. I listened to my research podcast last night as presented by Global AgriTrends. China is relisting pork and chicken plants that were delisted in 2020. The relisting includes 5 Canadian pork plants, two U.S. chicken plants and 3 chicken plants in Brazil. In addition, China is opening up their economy to foreign investments. China is preparing to do large business in the wake of COVID. Finally, it was detailed in the podcast that U.S. pork remains the cheapest pork in the world and huge growth is expected in Mexico and Latin America. Pork to South and Latin America is tariff free. The price is right and the dollar is substantially off the highs from last fall. I cannot with any accuracy predict when futures turn but we should be getting close. If you’re inclined to add to the bullish positions, do so before the turn. Two new ideas are penciled out below.
- Step into the Apr LH 94/104 call spreads at 120 points.
- Establish the Aug LH 118/124 call spreads at 90.
LIVE CATTLE:
Open interest in Feb LC continues to drop, down 2,797 yesterday with total open interest down 756 on the higher close. Volume was moderate to good at 60.3k. A light cash trade was reported in IA at $248 dressed which is the equivalent of $1.55 live. Beef was slightly lower. I’m expecting a higher cash steer trade later this week. The show list is reported to be smaller this week with TX numbers up 3k, KS down 1k and NE down 10k. Early projections put the weekly kill at 643k, or lower than last week. I am hearing that the actual kill may come in higher. Margins remain positive. Open interest in feeders, on the gap higher and sharply higher close was down 1,293 cars. Look for more fireworks in this market. Oct, Dec and Feb 24 LC posted new contract high settlements yesterday. This is bullish. Most active Apr LC yesterday traded below both the 40-day and 50-day MA before snapping higher and closing above both moving averages. The downward correction is complete. We’ve shifted some length from the Apr into the Oct. I’m bullish.
For a free 30-day trial to the evening livestock wire that includes the morning livestock report and midday pork and beef update, send an email to: dennis.smith@archerfinancials.com
