Tuesday, March 22, 2022
As the war continues reports are indicating that spring acreage in Ukraine devoted to crops will be down at least 30% from normal. Yield, regardless of weather, will be down with fertilizer in very short supply. Fuel is in short supply as well as seed and labor. It’s not a good situation regarding the global food supply and stability in certain regions of the world. Hardest hit countries will be Egypt, Turkey, Indonesia and many northern African countries. Hungar breeds instability. From a livestock perspective Europe has a problem. Look for the EU to begin accepting GMO corn for feed which opens the door for U.S. corn exports to Europe. From a fertilizer standpoint Brazil is in big trouble. They import nearly all of their fertilizer needs from Russia, Ukraine and China. This will likely challenge yields in S. America next winter. In this environment I’d consider it very unlikely for U.S. corn, soybean and bean oil prices to begin a down trend. Granted, fresh bullish inputs may be needed to send prices to all-time highs. At this moment I have no new trade ideas or recommendations.
Yesterday’s lean hog futures volume, at 42k, was larger than the live cattle futures volume which is very rare. Open interest was down 706 cars with Apr OI dropping by 1,682. Technically, yesterday’s action was bullish with summer hog contracts soaring higher. July actually touched limit up which is 465 points. So, the market can really stretch its legs with such a large limit in place. Hog prices and pork prices are now moving sharply higher in the EU after a massive cull over the last year. Breeding numbers are down 4% which means 400,000 fewer sows than last year with culling likely still occurring due to high feed costs. U.S. numbers are down, and this will be confirmed one week from tomorrow in the quarterly hog & pig report. This report should be bullish assuming they’ll pick up what they missed on the last report regarding lost pigs and reduced pigs per litter due to disease. Recommend keeping orders working to add to the Oct LH 110/120 calls near 130 points.
- Establish the Oct LH 110/120 call spread paying 130 points. Consider going up to 140 points if that will get the order filled.
The biggest threat for live cattle prices in the months ahead of the looming possibility of recession. IMO, a U.S. recession is not on the near-term horizon. IMO, recession will hit Europe far quicker than in the U.S. This will be the leading indicator. Barring recession, live cattle prices are headed higher and eventually sharply higher. Early talk is that cash steer prices will jump back to $1.40 this week after packers paid 138 in the previous two weeks. Wholesale beef is bottoming out with the old highs in the beef (roughly $250) now representing the new bottom. My sources are suggesting that choice beef will soon be back toward $290. We’re approaching the best time of year regarding beef demand. Beef is trading at 12-month lows providing a huge opportunity for end users to book excellent prices for spring/summer features. The deferred contracts are building a premium to the cash and this will continue. Look for a two-sided trade today but followed by a higher close.
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