Thursday, December 29, 2022
The grain board is lower with wheat the loss leader, currently down 14 cents with corn down 3 and soy down 2 cents. Funds remain a big-short in wheat and after the 60 cent move off the lows, odds favor a re-test of the lows. Corn has staged an impressive move upward which was not expected by me. I consider the long-term fundamentals bearish and fear that elevated corn prices are about to drop down hard and search out a new, lower trading range ahead of the 2023 growing season. Large crops in South America, poor to very poor export demand, declining fertilizer prices and expectations for increased corn acreage next spring and what appears to be a changing weather pattern in the U.S. are my reasons for being bearish. I recommend holding all bearish positions at least until after the Jan crop report and then we’ll re-evaluate.
Last week the hog carcass gained $4.62. So far this week the carcass has lost $3.49. So, in the wake of a huge disruption in the kill last week, backing up 600,000 pigs, the cutout has gained a whopping $1.13. Feb futures settled at 9080 yesterday compared to the hog index of 8069. At this time of year (holidays) just about anything is possible in these markets. IMO, it’s highly possible that Feb gaps lower today and never recovers. My opinion is well documented, bearish in the short term and bullish longer term. We will approach a meat shortage, a global meat shortage over the next few years. We’ve recommended that producers sell the board and we’ve recommended very conservative option plays for our spec traders. Look for sharply lower cash bids into next week. The weekly export sales report won’t be released until tomorrow. Normal trading hours both today and tomorrow and then all markets are closed Monday. Finally, open interest in LH was up 1,666 yesterday with Feb OI increasing by 1,042.
Open interest in LC edged higher, rising by 1,183 cars. This is bullish given fresh contract highs in all contracts but the Feb and Apr. I’m convinced that packers will pay higher money this week and likely again next week to secure animals. The math regarding cattle inventory is bullish. Oct saw record small placements and Nov saw record high marketings. Most robust of all is the fact that packer margins are once again highly profitable. Choice beef was up $9.12 last week and so far this week the choice has gained $7.46. Balls to the wall with the slaughter. Dec LC closed 60 higher, new contract high, new life of contract high settlement and the highest close for a spot cattle contract since April of 2015. Look for a mixed opening followed at some point this morning by a surge of buying. My upside liquidation target resides only 330 points higher than yesterday’s settlement. Beware that I’m not adding up here, I’m preparing to ring the bell.
- The liquidation target zone is when Feb LC trade to 16110.
- Recommend working orders liquidating the Feb LC 157 calls at 310 points.
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