By Dennis Smith 312-242-7905
Wednesday, March 9, 2022
GRAINS:
Report day. The USDA will issue a monthly supply/demand report today at 11:00. I’ve not given this report any attention simply because I don’t believe any of the numbers will be relevant in light of the current events shaping the world grain markets. Wheat futures are down 35 cents. Keep in mind the wheat market is broken. Millers and grain elevators are not using May and July for pricing cash wheat. These two contracts have little to nothing to do with wheat prices and they’ve become casino’s for algo traders. DO NOT TRADE THE WHEAT MARKET. If you want to hedge wheat, find out what contract your buyer is using, and find out why they won’t offer you a forward contract. Likely it’s because they don’t want to be short the board. We can offer put options on wheat. In times like this it’s our job to keep clients from stepping into a large pile of manure. Cash palm oil prices soared into record highs last night with Malaysian palm oil futures sharply higher. Indonesia is restricting the amount of palm oil that can be exported to protect domestic prices. We are working orders trying to get long May soybean oil.
- Buy Dec 630 calls/sell 750 calls/sell 550 puts on a pullback. Initial margin is $740.
- Buy May bean oil at 7510, use a sell stop at 7380 stop. (margin is $3,025)
LEAN HOGS:
Cash should be higher again today. Tops are summertime type highs yet it’s only the first week of March. Exports remain sluggish as reported yesterday. Will China be in the market again? My sources say no. Today the USDA will issue a new meat supply/demand table and I’m expecting a substantial drop in projected pork production. Chinese pig prices continue grinding slightly lower overnight as they reside way below cost of production. Futures rallied sharply in the face of day number two of the Goldman roll. Open interest was down 8,259 in hogs with the April contract shedding nearly 8,800 cars. I need to see a close in April over 105 which will really turn this market hot and signal a test of the contract high (11285). I strongly recommend the July call spread as penciled out below.
- Establish the July LH 130/140 call spread at 120 points.
LIVE CATTLE:
The consensus among economists, traders and bankers is that high gasoline prices, alone, will NOT push the U.S. economy into recession. This is bullish live cattle. Odds favor that the EU, due to their high dependence on Russian crude and natural gas, will slip into recession before the U.S. will. Crude oil is sharply lower today and U.S. stocks are sharply higher. Open interest in LC futures was down 6,660 yesterday with the Apr contract losing 13,000. So, OI was higher in the other contracts on the impressively strong close. I’m bullish LC futures. IMO, packers are at the end of the rope as far as stealing cattle from the feedlots. IMO, yesterday’s $1.38 cash trade in the S. Plains will not be repeated next week and prices will move higher to sharply higher from here forward. We are positioned for a major bull market move in LC. Our last play is buying May LC 146 calls for leverage. These calls closed at 62 yesterday. Recommend paying 70 or lower. Cover June hedges.
- Cover Jun LC hedges, taking the profit.
- Buy, in numbers, the May LC 146 calls at 70 points or lower. ($280 premium outlay)
For a free 30-day trial to the evening livestock wire send an email to: dennis.smith@archerfinancials.com
