Monday, November 28, 2022
Protests across the whole of China over COVID lockdown policies has driven crude oil into new recent lows and has nearly all other commodities lower early today, including grains. Meal and spring wheat are higher, corn, soybeans, soybean oil and board of trade wheat are lower. The protests in China, extremely rare, has ushered in widespread selling. But it’s the response by the government that will be important to monitor. Most assume severe crackdown and oppression. What if the government reverses course and instead backs off zero COVID and stimulates the economy? This response would not only be unexpected but very bullish. Corn is down 5 cents but still well off the recent lows. Rain is returning to Brazil but not to Argentina. The 6 to 10-day shows good rain in most of the Corn Belt. Will it help recharge or simply run off? The harvest lows are in place, IMO.
Friday saw an early rally that did not/could not hold in the most active Feb LH. After trading higher early, the contract closed lower. Futures volume was extremely light at 23.4k with open interest up 25 cars. More importantly, the carcass was lower on Friday, down $1.73. Bellies were sharply lower. The carcass was lower every day last week and lost $5.81. Hams are moving lower in tandem with bellies. Hams should break further as Christmas demand peaks. Look for Feb futures to move lower, testing key support at 8600. Below 8600, the next level of support will be a test of 8400. I’m bearish and we’re holding bearish option positions in Feb. I’ll be watching and waiting for a test of support. Pig prices continue to drop in China. The latest quote was down .50 and prices have dropped 2.00 over the last week. China won’t be in the U.S. pork market until sometime next year. Look for a lower open followed by a lower close.
There was no cash steer trade reported on Friday. A flurry of activity occurred Wednesday with tops of 155.25 in the south and 157 tops in the north. IMO, Dec, Feb and Apr LC futures, at Friday’s settlements, are undervalued. If Dec continues to gain on the Feb and Apr, it’s a sign that cash is still moving higher. Many in the trade are “guessing” that cash peaked last week. The negotiated volume last week was 61.1k. The weekly slaughter came in at 581k, or one of the largest Thanksgiving weekly kills in over ten years. The slaughter report from last week confirmed that the huge cow kill remains in force. The depletion of the beef industry cows is startling and long-term very bullish. Feeders continue to underperform due to elevated feed prices and due to rising interest rates. We have no position in feeders, but we remain highly committed to the bullish side of LC. Dec LC options expire Friday, and we own a host of 153/158 call spreads. Otherwise, most of our bullish option positions are located in Apr. Our next play, our next move will be into Oct bullish option positions. A seasonal high is expected at the end of this week with a very important seasonal low due in the middle part of Dec. My guess for today is a flat to lower open followed by a higher close.
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