Written Commentary
GRAINS:
Cash palm oil was flat overnight, but palm oil futures closed higher. Early trade on soybean oil is lower but the market is trading 70 points off the overnight lows. Corn has been lower all night but is currently near unchanged. Soybeans are about 5 cents lower with wheat slightly higher. Quarterly corn stocks are expected to be up 2%. Acreage numbers will be released next Thursday at 11:00. I consider the fundamental landscape facing both corn and soybean oil as bullish. We’ve established bullish option positions in the Dec corn for our livestock producers and our spec traders are holding the May $8.00 calls. We’re long a host of May bean oil futures and we’ve established various bullish option strategies. I suspect the grain board turns higher after the re-open today.
LEAN HOGS:
Open interest on the back and fill lower trade yesterday was down 1,330 cars. Note that April futures squirted higher in the post trade yesterday. Major resistance in Apr pigs stands at 10500. I suspect this level will be challenged prior to the hog & pig report due out on Wednesday at 2:00. I’ve confirmed that line speed waivers have been granted to three pork plants and that additional waivers may be granted soon. The three plants are; Clemens Food Group out of Hatfield, PA, Quality Pork out of Austin, MN and Wholesale Farm Group COOP out of Fremont, NE. My sources report that employees, contrary to Union opinion, are happy with the increased line speed as they can process hogs and go home. Pay has increased such that working long hours is simply not desirable. Pig prices in China have stabilized this week meaning they’ve stopped edging lower as they have for months. Prices remain way below cost of production. Meal and corn prices are sky high with corn prices record high in China. Shares of WH Group, one of the largest pork producers in China are trading at six-year lows this week. If pig prices start moving higher in China, as they have in the EU, this would be bullish to U.S. lean hog futures. I’m expecting the hog & pig report to be bullish. Trade estimates have not been released yet. I’m hearing all three categories will be 99% of last year. IMO, Dec futures are undervalued. Consider the two strategies as penciled out below. Both were executed yesterday.
- Buy Dec LH 120 calls at 60. (filled)
- Establish the Dec LH 104/114 call spread at 130 points. (filled)
LIVE CATTLE:
Today the monthly on-feed report will be released at 2:00. The trade estimates are listed below. However, there’s some fresh and unexpected bullish news out today for the beef market. Japan, in a surprise move, has expanded the U.S. beef safeguard. This effectively draws the U.S. back into the CPTPP trade agreement which Trump pulled out of. While complicated, this effectively opens the door for increased beef exports to Japan. Japan is in favor of doing this to fight food price inflation which is something all countries are worried about. The bottom line is the fact that beef prices in Brazil are record high and beef availability out of Australia is limited. Japan needs more beef. This is bullish especially the deferred contracts, IMO. Cattle futures have reached a very important inflection point, a change in major trend and structure. Funds have been actively selling while commercial firms have been actively buying. The obvious line in the sand from bear to bull is a close in the June above 13820. This is likely to happen soon, by this time next week, IMO.
ACTUAL AVERAGE RANGE
On-feed 101% 101-102
Feb placements 106% 104-110
Feb marketings 104% 103-105
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