Dennis Smith Livestock Report from Archer Financial Services, May 15th 2020

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Thursday May 14, 2020

CORN: China appears committed to purchasing large quantities of U.S. ag goods as part of the phase one trade agreement. Most expect a rash of soybean purchases which has already started. Given the price of U.S. corn, I won’t be surprised to see a large corn purchase in the days ahead. It’s a fact that the Chinese have depleted their corn reserves. Funds continue to hold a huge short position in corn and currently everyone is bearish given the outlook for a record large crop coming down the pipe.

LEAN HOGS:

China continues to dominate in the U.S. pork export arena. Weekly export sales were excellent at 47,500 MT. Although down 1% from the 4-week average the average is a very high number. China booked 40,200 MT with Mexico taking 5,100. So, without China, higher prices would have shut down pork exports to a very small amount. Shipments were solid at 39,300 MT, but again down 2% from he 4-week average. China received 17,500 MT of pork followed by Mexico taking in 7,600 MT. Japan, Korea and Canada also received pork last week. Hog weights are huge and confirms the massive problems at the farm/plant level. While slaughter is rising, we’re still backing up a large number of hogs at the farm. We’ve backed up 300,000 head so far this week. As weights rise the problems also rise and more hogs will simply not make it to the processing plants. Futures don’t seem overly concerned about huge tonnage simply disappearing at this time. The last day of the Goldman Roll rocked the June to the downside hard. Look for the bull spreads to recover, show strength today.

LIVE CATTLE:

Beef export sales were lousy at just 5,200 MT. That’s what record high prices will do. Guess who the largest buyer of U.S. beef was last week; CHINA. Price does not really matter to China. Their pork prices are about equal to our beef prices. Shipments were better at 12,500 MT but still down substantially. I suspect the Goldman Roll is complete in the cattle. I also suspect the yoyo will go back up today. Let me see, limit down (300 points) on Monday, limit up (450 points) on Tuesday, sharply lower on Wed. Cash has been established mostly at $1.10 but prices as high as $1.15 have been paid. The average price received last week was $1.05 per pound in the live cattle market. The beef pulled back suggesting a near term high as been established. Again, I suspect futures prices will dance higher today. A bullish minded trader may want to consider the following bullish position in Jun LC options.

  • Buy Jun LC 100 calls/sell 85 puts at a 50-point ($200) premium outlay. The initial margin to hold this bullish position is $1,000. 

 

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.

 

 

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