By Dennis Smith
Wednesday, January 12, 2022
Grains are slightly lower in the early trade. Today is dump day, the USDA will dump a huge amount of data on the market at 11:00. The tables are located in the evening livestock wire. What to expect? My sources suggest that the two most important aspects of the report will be contained in the corn stocks number and the wheat seedings number. Look for a large wheat seedings number because it was very dry in KS last fall, and everyone seeded wheat. However, the problem is…it’s still dry. The wheat crop is in very poor shape with no meaningful moisture in the forecast. So, an initial selloff in wheat off the large seedings number may not hold. Corn stocks can be very unpredictable. My overall view on corn and soybeans is that a very bullish response to the numbers is unlikely due to the current elevated price structure. Will there be any numbers contained in these reports that justify corn prices above $6.00 and soybean prices above $14.00? That, IMO, I highly doubt. A full discussion of the numbers will be in tonight’s evening wire.
Since the end of December cash hog prices have rallied $10.00. Now, why would that be the case? Labor issues, reduced kills, Omicron would all argue for lower cash hog prices. IMO, this is happening because the hogs are not there, or numbers are about to fall off a cliff. The only entity with this knowledge is, of course, the packers. Individual producers know this but on the whole packers have the information that very few others have. I’m going to make a statement; IMO, Feb hogs will challenge $90.00 before they go off the board on February 14, or 4 ½ weeks from today. IMO, summer hogs will challenge last summer’s highs which was 12360 and very likely surge on higher into early summer.
Currently the cutout is being dragged down by oversupply of bone-in hams due to labor issues. I contend that fewer hog numbers, as they fall, will help solve the labor issues that packers cannot seem to solve. Hog weights are now running about one pound below last year. After tomorrow the Goldman roll will be complete. Finally, the latest CME lean hog index stands at 7513, or just 270 points under the Feb paper, and cash hog prices are headed higher. Cutout should bottom soon. I highly recommend holding all Feb calls and buying the Jun LH 122 calls at 65 points. Our orders at 55 from yesterday went nothing done.
Buy Jun 122 calls at 65 points. (nothing done)
On the sharp rally in Feb LC yesterday the open interest in Feb LC dropped 11,800 cars. Total OI was down 3,080. So, we are cleansing the market of the spec length. The Goldman roll will finish tomorrow. Technically, the action was bullish as the market tested the December lows, the ever-important seasonal lows and held. This week’s kill is expected to exceed that of last week and I’m already hearing that next week’s kill will exceed this week’s harvest. Sources also indicated that cattle purchased last week in KS, for two weeks out, were picked up yesterday to be slaughtered today. Packers need the cattle and they don’t have cattle around them. Of course, margins are highly profitable, and they’ve jumped by over $100 per head this week. We are not initiating any new positions in the cattle at this time.
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