Thursday, November 11, 2021
Open interest surged higher in corn futures yesterday. Aggressive buying yesterday is focused on one thing and one thing only, inflation. Will futures be able to sustain the rally and follow through to the upside with carryout projected at 1.5 billion bushels? This is the question one must address. IMO, corn prices approaching 590 are overvalued relative to the underlying fundamentals. Could I be wrong, yes, certainly in the short term I could be wrong. Long term, likely not. If spring wheat prices remain above $10.00 in the Dec contract into expiration two weeks out, we’ll take $1.00/bu profits. When’s the last time you took out a $1 per bushel profit? Are soybeans headed for $13 because of inflation? Likely not, IMO, not with ending stocks projected at 340 mm bu and likely headed closer to 400 mm bu.
The pilot program announced by the USDA yesterday, allowing packers to apply for a one-year waiver, allowing them to increase chain speed, is bullish toward hog prices. The industry will push hard, slaughter more aggressively at the same time that numbers are decreasing. There is no question that demand is good for U.S. pork. Processing margins are highly profitable. The renewed competition will drive prices higher. Drastic changes are coming to the hog market. Don’t believe me? Take a look at the summer hog contracts. The U.S. hog industry remains in contraction mode, the EU is in an aggressive contraction and China has been contracting breeding stock for eleven months. Global pork production is about to drop off a cliff. I want/need to see a close in the Dec above 7825 to confirm all of the above comments.
Live cattle futures underperformed yesterday. The cash steer market is marching higher as I projected it would late last week and early this week. Futures are NOT sharply higher as I projected they would be. Cash is moving over the front month futures. Perhaps this is partly due to the Goldman roll which will be completed today. Cash tops yesterday were reported at 132 in the live market and at $208 in the dressed beef market. I’m expecting cash to trade as high as 134 by end of business tomorrow. It’s important, however, for feedlots to move the animals. No holding back. If the industry moves in tandem to get real current, to pull cattle ahead, prices will rise substantially. It’s not up to me, it’s up to each and every feedlot manager. We’re long Oct futures because that’s when production is expected to really drop off. Margins remain huge because demand for beef is outstanding. Exports are record high this year and that should be the case again next year. The Chinese ban on beef from Brazil remains in place. Weekly export data comes out in the AM.
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