Dennis Smith Livestock Comments from Archer Financial Services, November 16th 2021

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Weekly Cattle Slaughter Could Be Huge This Week 

By Dennis Smith  

312-242-7905 

Tuesday, November 16, 2021 

GRAINS: 

Besides the inflation situation I’m not hearing much fresh news for the grains today. Prices are mixed in the morning trade. I’m picking up from sources that cash grain is starting to really move in the country. We closed out our bearish soybean positions yesterday after getting blistered. Still holding the bearish corn position and we’re still waiting for expiration of the Dec spring wheat options which is one week from Friday. If you own corn and soybeans and don’t want to sell, that’s totally up to you. However, why not sell March or May out of the money calls to help pay your storage bill? Otherwise, no new recommendations.  

  • Risk on our bearish March corn option positions is a close above 590. Stick with this. If this market ever closes above 590 we will be calling and recommending to exit.  
  • Sell out-of-the money March or May calls to help pay the storage on unsold grain.  

LEAN HOGS: 

Open interest was down 77 cars yesterday on the mixed to mostly higher performance. Cash prices were lower yesterday, and the cutout was down .78 at $93.93. Many view the cutout, dropping under $100 as a failure but the cutout remains highly elevated historically which is testimony to strong pork demand. This week last year the cutout was quoted at $83.00 and two years ago at $87.50. Currently bone-in hams are cheap but boneless is expensive and bellies are very high. Frozen inventory is tight. In addition, numbers are projected to drop off substantially just around the corner. Summer hog contracts are trading at 9559 with Dec futures struggling at 7600. Yes, the longer-term fundamentals in the hog market are bullish, very bullish. I’ll be making some trading decisions soon on what to do with our profitable July call spreads. At the moment I have no new recommendations with the exception of highly recommending that producers secure puts for ASF event protection. If we have a case, a single case of ASF show up, even in Puerto Rico, you’ll ask yourself….why didn’t I buy a bunch of puts?  

  • Buy Dec and Feb puts for ASF event protection.  

LIVE CATTLE: 

The fundamentals in the pork, a few months out are bullish but the fundamentals in the beef, NOW, are bullish. Cash steer prices are on the move with clear evidence that feedlots are current for the first time in over two years. Early talk on the weekly kill were at 660k but now I’m hearing the kill may come in at 670+. Last week’s negotiated volume of trade, at 119k, was the largest weekly volume since last fall. Of course, higher prices were paid with live prices up $2 and dressed prices up $2 to $4. LC futures were subdued all of last week which I cannot really explain. Part of this may have been from the influence of the Goldman roll which is now complete. OK City had a very large run of feeders yesterday (13,000) and prices were steady. My outlook for the cash steer market this week is higher. Dec futures, having settled under 132, should be well supported, IMO. We’re long in the Oct and we’re holding a host of other bullish option positions. The latest addition was purchasing the Dec LC 135 calls at 75 points. These calls settled yesterday at 45. For today I have no new rec.  

 

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.