Thursday September 10, 2020
CORN AND SOYBEANS:
Today is the day to get leverage on the soybean market. The market has rallied over $1.00 right into the teeth of harvest. Don’t get looped into the idea that we’re about to harvest a very poor crop. That’s unlikely to be the case…it’s a very good crop. Consider the following methods, using options with no margin risk to establish a price floor while leaving the upside open in the event that I’m all wet. A combination of the two would be appropriate for most accounts. Doing nothing is highly inappropriate, in my opinion.
- Buy Nov soybean 970 puts at 20 ½ cents. Use a risk parameter of 10 cents on this position. Nov options expire Oct 23rd, or 43 DTE.
- Buy Oct soybean 960 puts at 6 cents (only a $300 premium outlay). Oct options go against the Nov contract and they expire two weeks from Friday on Sep 25th.
First, somehow yesterday I failed to mention that average hog weights, reported yesterday morning, were down nearly 5 pounds from last year. Consider the heat and the fact that hogs are on a racto-free diet this summer coupled with the theory that the backlogged supply is dead and gone. As the weather cools and when new corn is introduced into the ration weights will jump but this may not occur for a few weeks. Second, while subject to revision, it appeared that cash hog prices ended up sharply higher yesterday. Third, the news of a possible case of ASF inside the German border is very supportive to hog futures today. If confirmed, German pork exports outside the EU will be shut down. Germany is the largest EU pork supplier to China. Futures will possibly gap higher today. If the gap is left unfilled, that would be bullish. My next upside target is the 6450-6500 range. We’ll look to take some profits on our calls in this range while leaving futures in place. Weekly export data comes out in the AM. They should be friendly. It appears someone is really taking a lot of hams.
The Goldman Roll is driving down the open interest in both cattle and hogs. Open interest in the Oct LC fell nearly 9K and OI in the Oct LH fell nearly 7,800. LC futures are on a slippery slope as both the cash steer market and the wholesale beef complex grinds lower. Weights are huge, record large and on-feed numbers are also record large. Exports stink with July beef exports down 8%. Feeders are leading the fats lower and this should continue. My “first” downside targets are 13600 in Oct FC and 10100 in Oct LC. Recommend to trade accordingly. We’re spec short Dec and looking to sell Oct if they trade higher today. We’ve been hedging production since the last day of July. Our hedges are clustered in the Oct and in the April, leaving much of winter production unhedged. Any rally generated in LC today, on spillover from the hogs, should be used as a selling opportunity in my opinion.
- Sell Oct LC at 10485 or higher, buy stop at 10595 stop.
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