By Dennis Smith
312-242-7905
Thursday, December 30, 2021
GRAINS:
Unexpected rain in dry portions of south America has triggered fresh selling in soybeans overnight. Imagine that; rain. Projections overnight pegged the Brazil soy crop somewhere north of 140 MMT, record large. The crop is also about 20 days ahead of average meaning the U.S. export season will be cut short. Argentina soy production is now forecast at 45.7 MMT, down less than 1% from the last forecast. IMO, odds are very high that a major soybean top has been scored. Tops happen very quickly whereas bottoms can take weeks, even months to form. If the Jan finishes the week below 1334 this would be bearish on the weekly chart, showing an outside week lower close. We went after the market yesterday as penciled out below. I’m not aggressively selling corn and we’re holding bullish wheat positions. IMO, Russia will most likely invade the Ukraine at the conclusion of the winter Olympic games toward the end of Feb. In addition, I’m planning to go long soybean oil on a pullback during January. The bull market in the veg oil market is still alive and well. Stay tuned.
- Using Mar soybean options, buy 1340 puts/sell 1380 calls at even money. (Initial margin is $2,500 per strategy) Filled from ¾ credit to 8 ½ cents credit.
- New crop corn hedge: establish the Dec 22 540/460p/590c at even money.
- New crop soybean hedge: establish the Nov 22 1280/1160p/1360c paying 3 cents.
LEAN HOGS:
Open interest was higher in every hog contract yesterday with the total OI up 3,767. Given the performance yesterday, this information is bullish. New money should continue to pour into the hog market given the set of bullish supply and potentially bullish demand fundamentals. I say potentially bullish demand fundamentals because the impact of CA Prop 12, after the new year, is widely unknown. The Feb LH 85 calls settled at 220 points yesterday. We are working orders to liquidate half of our position at 390. It will take a move north of 8600 to get these orders filled. Possible but unlikely over the next two sessions. So, most likely we’re done trading hogs for the year. It’s been a highly profitable year for us in the hogs.
LIVE CATTLE:
Most of my sources in the south believe they’ll get $1.40 for their cattle this week. Trade in the north broke loose on Tuesday with some clean up in the north reported yesterday. Tuesday’s volume in NE and IA was over 25k each. The negotiated volume already stands at 71.9k and that’s with no trade reported in the south yet. I’m hearing that regional packers are bidding $224 in the dressed meat and this is being passed. In addition, it appears the grading took a nice jump last week, providing packers with more prime and choice beef to sell, further enhancing already beefy profit margins. No wonder they’re willing to bid aggressively for inventory for next week’s kill. Open interest on yesterday’s impressively bullish action was up 2,715. This is bullish. We are fully on-board the live cattle market. I feel bad that we liquidated Jan FC futures and never got back into the May. We missed it. As I like to say; anyone that thinks this is easy has never tried it. We could start off choppy with some profit taking early but by the end of the day, look for a higher close across the board.
- Buy Feb 23 LC at 14600 or lower. (Partially filled)
For a free 30-day trial to the evening livestock wire please send an email to: dennis.smith@archerfinancials.com
