MORNING LIVESTOCK REPORT
By Dennis Smith
Wednesday, October 27, 2021
As expected, corn and soybeans failed at resistance. However, they’ve not taken out support so the jury is still out regarding the next major move. My sources report that U.S. corn is now competitive to China. Ok, then where is China???? There has not been a daily sales announcement of corn to China in weeks. Ethanol demand is friendly for corn but I contend that U.S. feed demand is on decline and exports will not be record. I contend the U.S. yield will not drop much and that south America is on the path for record large crops. I contend a 1.5 billion carryout does not justify $5.50 corn. I’m bullish wheat and we have bull call spreads on the book. I’m bullish soybean oil and we have profitable long positions on the book. My buy zone to add to Dec bean oil is somewhere just below 6100. Perhaps we’ll get another shot at adding later in the week.
On the sharply lower trade open interest in hog futures edge upward by 886 cars. This is the first up-tick in OI on a down market in a while. Cash was not lower yesterday as forecast early. Cutout was fairly stable, down just .26. The hog index stands at 8266, $10.00 above Dec futures. I thought the seasonal low was in place. Yesterday proved me wrong. I believe the Sep lows will hold. If they don’t, I’d expect a move below 7120 to last only minutes and not days. It’s going to be rather easy to see if I’m right or wrong. I consider the long-term pork fundamentals very bullish.
On the upside breakout yesterday in LC futures, open interest surged higher by nearly 2,800 cars. Finally….finally we have the live cattle board on solid footing. The market is anticipating a shift, a change in leverage away from the ever-greedy packer and toward the feedlot. This shift is bound to occur as numbers and production decline in the face of record strong demand for U.S. beef. Cash steers traded as high as $1.29 (delivered) to a major packer in NE yesterday. The firm to higher tone is set for this week on a Tuesday. The show list is smaller and beef has bottomed out. The on-feed was friendly in that Sep placements, normally very large, were 4% smaller than expected. On-feed inventory is lower than last year and this should be the case for months. Finally, there’s China. U.S. beef is being introduced, successfully, to the Chinese middle class which is larger than the entire U.S. population. The Chinese ban on beef from Brazil remains in place. This story is still not factored into prices, IMO. Hold on the length.
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