Written Commentary
LEAN HOGS:
Stability in the product in the wake of large kills and heavy weights is a good thing, a bullish thing. The cutout was down .36 with cash higher. Futures were mixed but the summer contracts scored a massive double bottom. None of this will matter if Friday’s hog & pig does not show meaningful contraction of the breeding herd. Open interest edged up 367 cars yesterday. Feb put open interest was up 1,575 with the 68 strike up 1,220. Traders continue to nibble at deep out of the money summer puts for an ASF event hedge. No new rec. We’re holding the Feb 72 calls and a host of bull call spreads in the summer month options.
LIVE CATTLE:
Let’s talk about feeders for a minute. I need to see Jan close above 22360 to confirm a bottom. This is only a matter of time, IMO. The index stands at 218.15. Feeders were up $2 to $5 yesterday at OK City on 5000 head. Look for cash feeders and the index to continue to grind higher from here. Given the moisture outlook for the Plains I’m expecting reduced placements for the next several months. Given the fact that the supply of cattle outside the feedyard is record small, I find it impossible to be bearish. For today, for a conservative play, look to buy Jan FC 235 calls at 90 points.
- Buy Jan FC 235 calls at 90. ($450 in premium outlay)
LC futures saw an up-tick in open interest yesterday. Total OI was up 984 cars. There was no obvious feature in the options market that I could see. The outlook for cash steer prices is steady/higher for this week. The show list is smaller with numbers down 11k in TX, down 3k in KS and down 2k in NE. I’m hearing that feedlots are still full in the south but cattle are being shipped south for slaughter. ?? I’m not understanding this but that’s what I’m hearing. The Dec seasonal low is in place. I’m bullish. My next play (other than buying FC calls) might be buying Oct LC futures. I’m hoping futures back up for a couple of days.
GRAINS:
If Sep corn futures do not take out the Nov lows on this move, I’ll be looking to buy futures for a new long-term bullish position. Stay tuned. The Corn Belt is going to get a drink next week. Weather in Brazil is cooperating just enough to keep the crop going. I continue to hear that corn acreage for the second crop will be reduced. I continue to hear that U.S. producers will be switching acreage to beans or going bean on bean with corn acres down from this year. I’m trying to ignore the wheat market to save my clients money. Stay out of wheat. Again, if the corn market fails to take out the Nov lows this week, I’m a buyer.
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