Tuesday December 5, 2023
The trade will be watching to see if China comes into the U.S. wheat market again today. Their purchase yesterday, 440,000 MT, was the largest U.S. wheat purchase in over three years. Soy has bounced overnight after the miserable close yesterday. The bullish weather guys have blown it again. Yield will be down but acreage is up big so Brazil is still expected to have a large soybean crop. The corn crop could fall short of expectations especially on the second crop (reduced acreage) . I’m most bullish corn, then bean oil, then wheat, then soybeans. The UDDA grain report is due out Friday at 11:00. I recommend holding all bullish positions. I’m not happy with the soybean position and it will be the first to go but I want to wait until after the grain report. It’s my well documented opinion that corn futures have bottomed out.
Cash is called lower but not sharply lower. Cash hogs were actually unchanged to higher yesterday. Open interest in hogs was up 762 yesterday as all contracts closed higher except Dec. Feb traded over 18,000 contracts with open interest in this contract exactly unchanged. How does that happen? I’m looking for hogs to score an important seasonal low and they may have already done so. It’s my opinion that pork demand is improving. It’s my hope that numbers will soon peak. It’s my expectation that the industry is culling the herd. Finally, it’s my dream that one day China will be forced to start buying large quantities of U.S. pork. We stepped into the Jun 110/118 call spread yesterday for only 60 points and we snapped up a few Dec 70 calls for 15 points to take into expiration.
Open interest in FC was up 568 on the sharply lower performance yesterday. Guess what, the funds are going short in this market. Open interest in LC edged up by 336, nothing to conclude from this. The trade is scared with open interest in Feb LC puts jumping by 2,795. Funds are likely only long around 30-35,000 cars after peaking out at 120+ in Sep. Packers are in charge and they won’t be bidding strongly for cattle any time real soon. I heard rumors overnight that some feedlots capitulated and sold animals with time for 171. This plays right into the packers hand. We’ve got a big mess and it will take a little time to get the fundamentals back to bullish. In the meantime, how low can/will the funds and algo traders push this silly market? I recommend holding and margining up the Oct three way risk reversal. That’s our only margin position. NO ONE, I REPEAT, NO ONE SHOULD BE LONG FUTURES OUTRIGHT. My next play will be stepping into a large number of Apr LC call spreads. Look for another selloff today.
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