CATTLE FUTURES EXPECTED TO RECOVER TODAY
By Dennis Smith
Wednesday, January 5, 2022
The grain board is pulling back after a huge rally yesterday. Soybean oil is the only commodity higher on the board. Palm oil prices continue to move higher. In fact, the move in palm oil has been so large and quick that palm oil is trading over bean oil which is very rare. Wheat futures are the weakest, and this is the one I’m long. Look for wheat futures to hold fairly well at Monday’s low and again at the December lows. IMO, the upcoming USDA supply/demand report, scheduled for next Tuesday will not be bullish toward corn and soybeans but could be bullish toward wheat. IMO, the weather situation in South America is being overrated. The evening wire outlined the idea of buying Nov soybean puts to establish a high and profitable price floor under projected production for this summer. I doubt we see much interest as the trade is much too bullish.
- Establish the May KC wheat 890/990 call spread for 13 cents.
- Buy Nov soybean 1200, 1160 or 1100 puts to establish a price floor.
The closing pork report showed the cutout down .55 at $85.47. IMO, the carcass will move higher by the end of the week. Hams were weak but the report showed that 3.2 mm lbs of heavy hams traded yesterday. There was widespread concern yesterday in the market about omicron disrupting packing plants and slaughter operations. My sources are simply not reporting this as an issue. Consider that cash hog prices were higher both Monday and again yesterday. Now, why would packers pay higher for hogs is they knew they could not get them killed and processed? Weather and mechanical issues have been blamed for the very light kill on Monday. IMO, Feb hogs rally today. If they don’t, and close below 8000, recommend to liquidate all Feb 85 calls.
LC and FC futures saw a panic selloff yesterday off fears of COVID inspired disruptions in the kill. My sources are telling me that this is unlikely to happen. Tyson is 96% vaccinated. Omicron is not expected to last, in fact, it’s expected to peak within the next ten days. Look at the stock market and crude oil market. They are both near recent highs and in the case of stocks near record highs. The closing beef report, issued late yesterday, showed the choice cutout up .79 at $266.82 with the select up .33 at $259.23. Movement was active to very active at 128 boxes and 36 trim. Trimmings are strong. There’s not been a cash steer market established yet this week with only a few head trading in IA at 138. IMO, packers will have to come after the cattle today/tomorrow and pay higher money to get them. Look for a mixed open and then look for a surge higher in futures prices during the course of the session. I find it difficult to recommend stepping into the feeders with such high volatility. There’s simply no way to manage the risk. Instead, I recommend buying March feeder 180 calls at 75 points or lower ($375). These calls settled yesterday at 70 points. IMO, feeders are eventually headed toward 190 by spring. Repeating, look for a higher board by the close in both fats and feeders. Tough weather is also impacting many cattle over the next few days. Weights will finally peak.
- Buy Mar Feeder 180 calls at 75 points (premium outlay of $375)
- Liquidate the Feb/Jun spread on a close below even money.
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