Written Commentary
GRAINS:
GENERAL COMMENTS: I’ve reached the conclusion that the Fed, slated to raise interest rates Wednesday by .75 percent, will instead surprise the market with only a half percent rate increase. The stock market and bond market appear to have already figured this out. Later in the week, on Friday, the government will also release the employment report.
Soybeans are sharply higher off a rumor, still unconfirmed, that the Chinese government may be ready to back off on their zero COVID policy and ease back on the lockdowns. Copper and cotton are also sharply higher. Corn and wheat are flat. We own a Dec soy put spread and we’re holding bearish Dec corn option strategies. For now, no changes. We may have to abandon our short positions, however. Stay tuned.
LEAN HOGS:
The hog market may have figured out the news that China is ready to ease the zero COVID policy and back off on the severe lockdowns. Summer hogs were strong yesterday. This news is much more bullish cattle than it is hogs, but it’s long term friendly to the hog market. Cash is called steady to firm for today. The carcass was lower, and I’d expect more pressure in the hog carcass again today. Open interest in hogs was down 3,708 yesterday with large decreases evident in Dec and Feb. The managed money players are getting whipsawed in the hog market these days. My downside target in Dec is 8100.
LIVE CATTLE:
Stocks and bonds are sharply higher, and the dollar is lower. The news, the rumors, that the Chinese government may be dropping the zero COVID policy is bullish live cattle. Currently 200 million Chinese citizens are under some form of lockdown over 28 cities. China is actively buying U.S. beef. Jump start the economy and beef consumption is going to rise. Last week’s negotiated volume of trade was over 85k. This week the show list is a bit larger, up 6k in TX, down 1k in KS but up 8k in NE. The weekly kill is projected to decline from last week and this trend should continue as fewer finished cattle become available for slaughter. Most anticipate another round of higher cash steer prices will be paid this week. Factoring in the Chinese news, IMO, the deferred contracts may lead the board higher today. This should also spur buying in feeders. China is the big dog and China is a major player in U.S. beef exports. If/when China makes a change in policy, it’s a big deal and the markets will react. I’m bullish and recommend holding the Nov LC 148/152 call spreads into expiration Friday to garner the max 400-point profit. If you’d rather take the money and run, give us a call. The call spread settled near 340 points.
For a free 30-day trial to the evening livestock wire send an email to: dennis.smith@archerfinancials.com and be sure to follow @denniscattle on Twitter.
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