Tuesday September 19, 2023
Wheat futures have no support, they’re trading down 3 to 6 cents. Corn is down 2 with soy 2 to 4 lower. We were filled overnight selling up to half of our Oct corn 480 puts at 12 cents. This basically gives us a free look at the market into Friday with our remaining puts. We’ll continue to hold the Mar bearish position through harvest. My next downside objective is 450 or another 20 cents lower. Palm oil futures were stable overnight. We stepped into a bullish Mar soybean oil three-way risk reversal yesterday. This is based upon tight projected U.S. soybean stocks and very tight current bean oil stocks. The demand for biodiesel is expected to continue to rise. The U.S. is in the process of expanding crush capacity to meet this demand, but most new plants will not be on-line until late next year at the earliest. I anticipate a rally in bean oil in the meantime. The margin to hold the bullish position penciled out below is $1,400. Open interest in corn jumped by over 16k yesterday as funds continue to add to highly profitable short positions. Take a look at the chart, it’s awful.
- Establish the Mar soybean oil 64/76c/56p three-way risk reversal at 50 points or less. This strategy is currently trading at 25 points. Risk a close under 5700.
Open interest in hogs edged upward by 437 cars on yesterday’s mixed close. Cash was mixed and cutout was higher, up $2.67. The 640-report indicated good export business last week. Weekly export numbers will come out Thursday morning. The Sep quarterly hog & pig will come out one week from Thursday. This report should pick up the aggressive sow slaughter that took place over the summer. The farrowing intentions will carry a lot of weight on this report. I’m preparing to buy Jun LH calls on weakness. Stay tuned.
Another large volume trade in LC, reported at 93.1k with open interest up 1,387. The only feature I picked up in the options trade was hedging using Dec puts. Open interest in the Dec 182 puts was up 1,863. Very large volume in feeders (26.9k) with open interest down 1,139. If Sep feeders trade lower today, they’ll be even with the CME feeder index, last reported at 25339. So, after fresh contract highs last week futures staged a massive basis correction yesterday with futures sharply lower and the index edging higher. Feeders were higher yesterday at OK City. The narrowed basis makes me willing to try the long side of feeders with a tight sell stop. This idea is penciled out below. Keep positions small as feeder margin is nearly $3,500 per contract. The show list is larger, but packers likely need cattle. The outlook is for another rise in cash steer prices. The beef appears to be stabilizing. Look for a mixed to lower early trade.
- Buy, in small size, Oct FC futures at 25920, using a sell stop at 25810 stop.
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