By Dennis Smith
Wednesday, April 20, 2022
May and July soybeans are the strong suit early today with corn and wheat slightly higher. Bean oil is mixed and for today I’m recommending changing orders to roll into July at 200 over (or higher). These orders should get filled on the re-open today with the spread currently trading at 210. Corn futures appear to be correcting an overbought condition with flat prices only slightly off the contract highs as this process occurs. The corn market is in a major fundamental bullish crack. May options expire Friday, and we still have a few clients holding some May corn 800 calls. Other than rolling the bean oil I have no further recommendations for today. I favor covering the short Dec 550 puts at 4 ½ cents, holding the 630/750 call spreads and then preparing to add another bullish position on any pullbacks that occur during the growing season. The Dec 550 puts settled yesterday at 5 ½ cents, getting close.
- Roll from May to July bean oil at 200 over.
The big news for the hog market today is that Chinese hog prices are jumping sharply. The latest quote has pig prices at 14.50 RMB/kg, up .84. This is a major upside breakout on the cash hog chart. This tells me that the major liquidation phase is slowing and production is dropping. Others, on ag twitter, disagree and site the higher price due to the government purchasing 40,000 MT for reserves. Nonsense. That amount is a drop in the bucket compared to daily Chinse pork production and will not move the needle on hog prices. If the dog is hitting the end of the chain, this is very bullish toward lean hog futures. This explains the action (higher) so far this week. Open interest yesterday was down 1,579. Futures pulled back yesterday. The late cash was sharply higher, but the cutout cannot move north of $110. Some say if/when the cutout moves and holds above $115 the futures market will soar. Well, the Jun carcass contract is trading at 127, so that contract is suggesting a move above 115 is only a matter of time. June calls are too rich for my blood. If you already own some May calls, I recommend doing nothing. If you want more length, buy a few May LH 120 calls at 110. They settled at 117.
On the solid action yesterday the open interest in LC futures was up 1,257. There was a nice build in both the Jun and Aug contracts. As reported in the evening wire Cargill was bidding $230 for cattle late yesterday in western IA and Eastern NE. The live bids in the north were reported at $1.44-$1.45. Some trade evidently occurred, but some bids were passed. Apr futures closed above the March highs yesterday, marking their highest settlement since Feb 28th. Watch Jun futures closely for a close over their March high (13850) which would be bullish. While the cutout is not moving sharply higher, it would appear that packers are “feeling” strong springtime bookings. I anticipate a sharp rally both in cash and futures over the next few weeks followed by a pullback into the summer lows. The on-feed report, due out Friday, should be bullish. I won’t be surprised to see placements come in below the average trade guess. The estimates are pegged below. We’ve been buying Apr 23 futures, adding to our bullish positions.
ACTUAL AVE RANGE
On-feed 100% 100-101
March placements 92% 87-96
March marketings 98% 98-99
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