Monday, April 18, 2022
May bean oil gapped into fresh contract highs on the Sunday night’s opening bell. On Friday the March crush was released showing a record large crush at 181.7 mm bu but the report also showed a drop in bean oil stocks. Record large production and a decline in stocks underscores huge demand for soybean oil. May is gaining on the July. Later this week we’ll start rolling out of May and into July. The next upside target is weekly resistance at 8350. Corn futures are strong along with both soybeans and wheat futures. Some rain has been pulled from the forecast for the S. Plains wheat belt. It appears some corn will get planted before the end of April but the war in Ukraine rages on. Some speculation is focused on talk of a flash drought impacting Brazil’s second corn crop. If you’re still long the May corn 800 calls, I recommend picking some premium levels and scaling out of the position over the next three sessions. May options expire Friday. Wait for instructions on rolling the bean oil. I have no other recommendations at this moment with the exception of covering the short Dec corn 550 puts at 4 ½ cents (currently trading at 6 cents).
Open interest was down just over 1,000 contracts in hog futures from Thursday’s action. Apr hogs went off the board Thursday. As that happened, buyers surfaced and drove futures higher. The final hog index against the expired Apr contract is 9997. Rising feed prices are bullish. This will encourage lower weights at marketing and it will keep any thoughts of expansion dead in the water. Pig prices in China are moving higher with the latest quote at 13.13, up .48. China’s first quarter GDP came in higher than all expectations. Of course, they’re currently fighting COVID in parts of the country. The pork cutout was up $5.74 last week and quoted higher every day. Packer margins are now profitable as they sit down on the cash hog market. Pork prices are headed higher and very possibly sharply higher into the middle of summer. It appears that futures have completed a major downward correction and the uptrend is ready to resume. Two weeks ago, we stepped into some May calls. I’m recommending adding to the position today.
- Look to buy May LH 120 (settled at 127) or 125 calls (settled at 57) early today.
The negotiated volume was over 90k last week and packers paid higher money to own the cattle. The beef was slightly higher last week but packer processing margins are outstanding. It appears that springtime demand is being felt by the packers bigtime. Export demand has been slack recently. If exports would pick up in tandem with a surge in domestic demand, we could experience an impressive cash-led rally. Keep in mind that beef imports are expected to drop off big time as Brazil has already met their annual quota. Choice beef on Thursday was quoted at $271.86. My sources are projecting a move, in the short term, to at least $290. The long-term supply/demand picture for cattle prices is very bullish. My next play will be buying April 23 LC futures. Stay tuned as this trade is realized. Rising feed prices will force feedlots into a current marketing status. Drought in tandem with 10-year high corn prices, with wheat prices also highly elevated, will keep the beef cow kill elevated. My sources are projecting a period of “several years” in which beef demand outstrips supply. This is not just a bullish U.S. situation but a global situation. The only fly in the ointment is recession. I saw a projection today that puts the odds of U.S. recession over the next two years at 35%. Prepare to buy Apr 23 futures.
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