Monday December 4, 2023
GRAINS:
The wide-eyed weather bulls are getting their butts kicked this morning. Soybeans have penetrated support. There is rain in N. Brazil. The crop will still be shaved down over time, but they will have a crop, a very good crop. I contend that corn acreage will decline and the meaningful decline in S. American crop size will be in corn. I’m bullish corn. We’re holding bullish positions in soybeans as well but relatively small in size. I’m not closing these out. We’re long one unit of soybean oil and looking to add another unit. Stay tuned on this idea. The COT report showed that the funds are short 206,000 corn contracts, their largest short going back to June of 2020. They’re short 120,000 wheat and long 67,000 contracts of soybeans. Again, stay hooked on the bullish positions, even the soybeans but the weather situation is not nearly as bullish toward soy as many have made it out to be. Chasing a weather market rarely works out well.
LEAN HOGS:
Open interest in hogs, on the lower performance was nearly unchanged, down 22 cars. Last week’s kill was the monster that we expected, coming in at 2.704 million pigs, up nearly 5% from last year. This was the largest kill of the year. In the face of this huge kill, last week the hog carcass was down only .62. It seems pork demand is improving. This was demonstrated in the most recent cold storage report. Pork is very competitive on the world market. U.S. producers are stealing market share from the EU. Cash was down $3.00 Friday and called weak for today. I’m not interested in pressing the short side of hogs. Dec futures settled 275 under the index. Dec goes off the board Dec 14, or 11 DTE. A very low risk, short-term trade idea is buying a few Dec 70 calls for 15 points ($60). Hold into expiration. I still like the long-term play in the Jun options and we’re trying to cover one of the short Jun 108 calls on the 1×2 position. There was no feature in the hog options trade Friday.
- Buy Dec LH 70 calls for 15 points. Short-term trade, extremely low risk.
- Establish the Jun 110/118 call spread for 60 points.
LIVE CATTLE:
Live cattle and especially feeder cattle futures are in a “take no prisoner’s” mode. Everyone is getting an ass whipping here. We can all thank CME for expanding the daily ranges for this fun. Open interest in LC dropped by more than 3,800 cars Friday. Ouch, get me out type of trade. As Dec options expired I noticed that Jan LC call open interest surged by 2,293 Friday. The Jan 205 calls increased by 750. Nice to know someone is still bullish toward LC futures. The Jan puts also increased in open interest, rising by 1,420. My outlook is for LC futures to penetrate the recent lows as the market moves downward in search of the important December seasonal low. Packers are in charge. They won’t bid until margins are nice and profitable. Then, they’ll eventually increase the slaughter pace and then, eventually they’ll start bidding again for inventory. This will take time. We need at least a 100-point rally to have a shot at getting the put spread outlined below filled.
- Establish the Jan LC 168/162 put spread for 120 points. The premium outlay is $480 for options that go against the Feb contract and expire Jan 5, or 36 DTE.
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