MORNING LIVESTOCK REPORT
By Dennis Smith
Follow me on Twitter @denniscattle
Tuesday October 6, 2020
CORN AND SOYBEANS:
If you’re still not on board the long side of corn consider the following strategy.
- Buy Dec 380 calls/sell 410 calls/sell 360 puts at 5 cents or less. The long call is already 2 cents in the money. Initial margin is only $490.
Cash was higher yesterday with the late report confirming prices paid were up $1.25 to $2.75. Packers hate this. They hate having to compete in the negotiated market for hogs. The weekly kill is projected to come in at 2.685 million pigs, up about 3% from last week but unchanged from last year. The hog & pig suggested the kill for this week should run from up 6% to up 10% from last year. The carcass gained $2.85 and will likely be higher again today. Look for a firm to higher cash market today. So, with open interest in Oct futures at 19.4K, with the index headed upward and the contract under the index by 250 points, is today the day that the shorts begin to run for cover? It’s now clearly evident there won’t be a surge of hog numbers into expiration. Look for a rally today and it should be led by the Oct.
The talk in cattle country is that despite the fact that on-feed inventory is record large the numbers of fed cattle ready for market are current, are not burdensome. This likely applies in TX and NB more so than in KS. Still, we’re hearing the many feedlots are full and need to move animals out, close them out so there’s room for replacements. Feeders seem to be confirming this outlook. I’m looking for a way to get short Jan feeders and at some point I’ll just have to pull the trigger and put in a buy stop. Perhaps at midday I’ll have the rec. If you need hedge protection in feeders, don’t wait for my sell rec. Most in the country are calling for another round of cash steer strength this week. Cash was established last week at $1.07 and 167-168. While I don’t have a problem with the outlook for higher cash this week, I’m not convinced the board is headed higher. In other words, we may start seeing the premium to cash leak away. Beef production is running at record high pace.
The risk of loss in trading futures and options on futures can be substantial. The author does not guarantee the accuracy of the above information, although it is believed that the sources are reliable and the information accurate. The author assumes no liability or responsibility for direct or indirect, special, consequential or incidental damages or for any other damages relating or arising out of any action taken as a result of any information or advice contained in this commentary. The author disclaims any express or implied liability or responsibility for any action taken, which is solely at the liability and responsibility of the user. This report is a solicitation.