Pig Prices in China Higher This Week

LEAN HOGS:

Open interest dropped by 8,500 as the OI came out of the expired Oct LH contract. At 237,452, this should be a low water mark for lean hog open interest. Early selling pressure should drive futures into the gaps created at the end of Sep by the hog & pig report. Last night’s evening wire listed, in bullet fashion, the pork fundamentals. Folks, the long-term pork situation is bullish…very bullish. Weights are increasing as hogs get a taste of new corn and the weather cools. However, it appears that hog prices and pork prices in China have bottomed. Pig prices are up 15% from last week. It might be possible that the massive cull and panic marketing of hogs is finally complete. Sow prices, last week, were at 15 cents per animal…that’s right, near zero. Central planning in China, as it relates to pork production, has failed miserably. They still have ASF throughout the country and they’ll still need to import large quantities of pork, likely for years.

Consider the following to get started building a bullish position. Using Feb options, which expire Feb 14, or 119 DTE.

• Establish the Feb LH 85/92 call spread at 175 points. This is a premium outlay of $700, with no marginable risk, and with a potential maximum profit of 700 points or $2,800. That’s four times your money with zero marginable risk.

LIVE CATTLE:

Open interest was down 913 in LC futures yesterday. Feeders were lower and they saw a slight up-tick in open interest. Looking at the Dec LC chart, one might be bearish with the outside day/lower close. I don’t subscribe to this notion. I remain bullish to very bullish from both a fundamental perspective and from a technical perspective. It appears that cash will be established this week at 125 or higher in the live and $196 or higher in the dressed meat. My guess is that futures start out sloppy early today and then turn higher. Look for an active cash steer trade by the end of the day. On-feed is out Friday.

GRAINS:

Taking the cue from sharply higher rapeseed prices in Europe yesterday, palm oil prices soared overnight. Cash was quoted sharply higher and futures settled sharply higher and into new record high territory. The key fundamental to be aware of, the premium of soybean oil to palm oil is very narrow, much narrower than normally the case. What I’m saying is soybean oil is cheap…cheap compared to palm oil. Yesterday’s close signaled a move to 7000. Soybeans are being driven by the oil but soybean futures are not powering their way through resistance. Meal remains an anchor. Corn futures are higher but the market is bound to struggle to move beyond my well-defined resistance. We’ll continue to move out of length in the corn. IMO, the bullish story in corn has passed. Reports that acreage devoted to corn production would decline less than 1 million is bearish. There’s an old saying that corn will always get their acreage. Wheat prices should be headed higher. I tried buying wheat last week with no success. Admittedly, I’m not much of a wheat trader. We’re holding profitable bull call spreads.

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