Dennis Smith from Archer Financial Services, Confusion on CA Prop 12 Continues

By Dennis Smith  


Wednesday, December 15, 2021 


Cash palm oil prices were sharply lower overnight. It appears that the March bean oil contract will soon test 5000. I’ll be watching closely and looking to establish a long position at some point. Monthly crush figures come out later today. Corn refuses to break down with strong crush margins and the situation brewing in Ukraine. Russia now has 175,000 troops amassed on the border. It appears Putin has real intentions of an invasion and there’s no one to stop him. The EU is not in a position to talk tough to Russia. Europe is highly dependent upon Russia for natural gas. President Biden has already stated that military options are not on the table. Ukraine is the fourth largest corn exporter and fourth largest wheat exporter in the world. This situation appears to be why corn prices are holding up. If corn futures pull back after the first of the year, as grain starts moving freely as forward contracts are met, we’ll look at bullish positions in the corn market. It appears highly likely that an invasion will occur. In other news, I found it interesting that Citigroup is projecting higher corn, soybean and wheat acres in the U.S. next spring. Talk of dry weather in S. America is supportive but the crop is still rated very high and acreage, of course, has been expanded again.  


Sources continue to provide information that many in the industry are pressing for a lack of implementation/enforcement of prop 12 come Jan 1. It seems that CA failed to provide specific regulations to meet compliance. At the same time one of my sources is reporting that a major packer is telling customers they’ll not be shipping to CA starting Jan 1. Because of this confusion, and because we already have several bullish positions on the book, I’m not interested in adding to them. I plan to be silent in the hogs for the rest of the year. Having said that, I do anticipate solid support in the Feb from 7950-8000.  


The cash steer market has been established at 138. So, the greedy packer has been successful at backing off the cash bids, down from the 142 tops of two weeks ago. Still, look for Feb LC to find support on weakness. I’m wondering if China will soon begin a meat import surge just ahead of the winter Olympics which start in Beijing Feb 4th. Be aware that the Chinese ban on beef from Brazil remains in place. Beef, wholesale beef prices continue to edge lower but demand is rising on every down tick in the price of beef. We’re long in the back end, Oct and Feb 23. We have some bullish April option plays on the book and for this week I’m interested in adding leverage without adding greatly to the risk. Consider the following.  

  • Buy Jan LC 138 calls/sell Feb 144 calls at a 100 point ($400) premium outlay. There is no margin to hold this position unless we exercise the call on expiration Jan 7th. 

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