By Dennis Smith
Tuesday December 26, 2023
The bullish traders are calling futures higher, the bearish guys are calling the market lower. Funny. The funds continued to add to their net short in corn, building a huge short north of 180,000 contracts. They were aggressive sellers of soybeans, reducing their long position and large sellers of bean oil, adding to their short positions. My opinion is clear, I don’t expect a large downside move in corn futures. I’m long-term bullish and holding bullish three-way risk reversals in May options. For traders with no corn position, I’d consider buying Sep futures.
I view the hog & pig report as a huge disappointment and sets the stage for more pain, more downside pressure down the road. More liquidation is needed to get pork supply in balance with demand. Argue with me all you want, but that fact that producers have been losing money for more than 12 consecutive months is proof that the market is oversupplied with pork. The dramatic improvment in pig efficiency is overwhelming the herd contraction. Herd liquidation was common with two major exceptions, PA up 19% and SD up 15%. Reducing the herd by 1% when pigs per litter is up 4% is poor math. I give up on any hope of a major bottom and meaningful rally in hog futures. For today I recommend liquidating the Jun bull call spreads. We have two on the books which will be liquidated at a very small loss.
- Liquidate the Jun LH bull call spreads today.
Guess what, Nov placements at 98% of last year or 1.868 million, is the smallest Nov placement rate since 2016. How many have told you that since the report was released. I heard that cash would be higher this week before the report was released and before the winter Christmas storm was evident. Fargo ND has had the wettest December on record. Rain in the plains is forecast with snow in portions of NE and large portions of the Dakotas. The beef is moving higher, and it is expected to rise this week on holiday fill-in orders and limited production. Funds have reduced their net long position to just 16,800 cars. Back to the on-feed, I’m hearing that placements will be down in December and likely again in Jan and Feb. Throw in some winter weather and the concept of large on-feed inventory and record heavy weights can change rather quickly. Remember, we’re trading in a futures market that anticipates future developments that impact supply and demand. I can’t imagine anyone wanting to sell futures aggressively, especially deferred contracts. I’m bullish. Look for mixed to higher open.
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