Monthly Cold Storage Supportive to Meat Complex
By Dennis Smith
312-242-7905
Tuesday, January 25, 2022
GRAINS:
Wheat futures are stretching their legs this morning, moving up to a one-month high. There’s some moisture for wheat country in the 6 to 10-day. However, the market is reacting to the to the threat of invasion by Russia. This of course, is something we’ve been anticipating. The bullish three-way we own in May wheat is trading from 7 to 8 cents. We own the position (see evening wire) from 3 cents with many clients executing at even money and some even getting paid several cents. We’ve been on a wild ride here and nearly got stopped out for a substantial loss. Recommend working orders to unwind at 15 cents, taking a profit. My next play will involve getting long in soybean oil. I’m looking at a bull call spread ideas to get started. Watch for a specific rec in the midday pork and beef update. No position right now in corn and soybeans.
- Prepare to buy May soybean oil on a pullback.
- Unwind the bullish May wheat three-way risk reversal at 15 cents.
LEAN HOGS:
The monthly cold storage report remains very supportive of the pork complex as well as the entire meat complex. Total pork, at 415.9 mm lb is down 4% from last year and down 19% from the 5-year average. Broiler stocks are down 23.6% from the 5-year average. Beef stocks are down 6% from last year and down 2% from the 5-year average. U.S. pork production is dropping fast with weekly slaughter rates running from down 6% to down 10% from last year. Hogs are not backing up in the country. The pigs are not there. Lean hog futures closed higher yesterday in the face of a major meltdown in U.S. stocks and most other commodity markets. Impressive. The higher close occurred on rising open interest, again. Total OI was up 1,715 on large volume of trade pegged at over 61k. Technically, the hog market is bullish. Fundamentally, it’s very bullish, IMO. I’m looking to harvest most of our remaining Feb call options when/if futures trade in the 8740-8790 range. Ring the bell if this happens today. We’ll keep some of our bull call spreads such as the 86/90 call spreads. The carcass closed above last week’s high yesterday and the weekly kill is picking up, projected at 2.497 million, up 2% from last week. It appears that packers are starting to run boning lines again. The labor issue seems to be improving substantially as Omicron peaks. Look for a higher open.
LIVE CATTLE:
The stock market was sharply lower when LC futures closed yesterday. Stocks closed higher. Stock indices are lower early today but the point is that yesterday’s lows are likely a solid floor, at least for now. LC futures saw volume over 100k yesterday with open interest up 1,666. FC saw volume over 20k. We were buyers on the break yesterday, snapping up Oct and Feb 23 futures. Oct closed at our entry price whereas Feb closed 75 points higher than our entry. Asking prices for cattle in the feedlots resides at 137 and $218. IMO, futures are incorrectly forecasting a lower cash market for this week. The board may rectify that outlook with a higher performance today. Many continue to “call a top” in the wholesale beef. It just keeps going higher. The weekly kill is projected to come in at 644k, a nice bump from 636k last week. Who knows, with margins hugely profitable and labor improving, the kill may exceed the projection. Frozen beef stocks reside at 535.9 mm lb, down 6% from last year (despite record high production last year) and down 2% from the 5-year average. The next report, the bi-annual inventory, due out next Monday, should be bullish. I’m bullish. Look for a higher open with upside follow through.
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