Friday July 22, 2022
Some sort of grain corridor treaty is expected to be signed today. The details are not yet available. Something about releasing 80 ships from port. However, there are tons of unanswered questions such as mines in the Black Sea, insurance, etc. I still believe this is window dressing, a show, so Putin can blame others in the event of mass starvation. In the meantime, corn futures have taken out the recent lows and appear somewhat comfortable at these levels. Open interest in corn was up more than 10k yesterday, another bearish indication. It’s possible that the market will put in a near-term low early today for a nice bounce. However, it looks highly likely that eventually this market will take another leg downward before the end of the growing season. Cash palm oil continued to erode overnight as did palm oil futures. Rapeseed prices in Europe touched a 10-month low overnight. Wheat is lower off the grain corridor story. Funds are going short the grain board. Let them build a short, stay out of their way. Another 30 cents lower and corn will be too cheap. No rec.
Open interest surged in hog futures by more than 3,400 cars. That’s impressive and bodes well in the short term for this uptrend. However, product is getting very rich and the Oct/Dec are approaching massive overhead resistance that won’t be taken out on this move, IMO. Hedgers want to look at some Oct and Dec hedges. I will pencil out some strategies today and they’ll be ready for tonight’s wire. There’s a seasonal low due in early Sep. Exports remain lousy and I don’t see the market taking out major resistance without a vast improvement in export activity. The current situation, the strong uptrend is sponsored mostly by tight to very tight supplies of hogs in the heat of summer. As food for thought, Aug LH 112 puts closed yesterday at 80 points. If/when these drop as low as 40 points; a spec may want to buy some. Aug LH options expire Aug 12 or 22 DTE. Look for hedging recommendations in tonight’s evening wire in the Oct and Dec options.
- Specs, prepare to buy a few Aug LH 112 puts.
- Producers, prepare to lay into hedges using Oct and Dec options.
In sharp contrast to the hogs, open interest in the LC continues to peel away. Total OI yesterday was down 3,635 cars. OI stands at only 256,853 contracts, a two-year low. We’re starting a major bull market, a major long-term bull move in live cattle with open interest at two-year lows. This could be fun. The funds are out of the market. Today is report day and I’m anticipating a bullish surprise on the bi-annual inventory. We’re in the third year of beef cow cull and the herd contraction has accelerated this year. Y-T-D cow kill is up 14% from the first six months of last year. In the live cattle market demand remains strong. At some point I’m anticipating feedlots to get fully current and for the leverage to swing away from packers. The corporate boys responsible for keeping packer feedlots full of cattle have been scrambling for light weight feeders. Breakeven close outs on many of these animals are north of $1.60. Packers know full well what is about to happen. They want ownership. We’ve added to length in feeders this week and we’re holding Aug calls and bullish positions in both futures and options in the Apr LC. The numbers roll out at 2:00 Chicago time.
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