Written Commentary
CORN AND SOYBEANS:
Consider it highly likely that a top may have been established yesterday. The weather pattern does not look threatening with chances of rain this week and later during the month. The crop, both corn and soybeans remain rated above 70% good to excellent. We’ve been sellers and/or buyers of put options.
LEAN HOGS:
Cash is expected to continue eroding. The weekly kill is projected to be large, historically large for mid-summer at 2.583 million pigs which would be up nearly 7% from last year. There continues to be problems in the food chain. Restrictions remain in place at some retail outlets and processing items, which is a major part of pork sales, remain tight in many parts of the country. Retail prices remain high. Yet we’re processing record large numbers and pushing this product into the broken pipeline. Buying Aug puts is highly recommended for hedge clients. Specifically, the Aug 48 puts settled at 205 points and a guy can establish the 46/40 put spread for 100 points. If prices bottom then you’ve left the upside open. If we experience a weak expiration in the July followed by a weak expiration in the Aug, you at least have some protection. There’s a chance that euthanized baby pigs will sponsor a rally in the fall time frame.
- Buy Aug LH 48 puts at 200 points.
- Establish the Aug 46/40 put spread at 90 to 100 points.
LIVE CATTLE:
Open interest was down in LC futures for the second consecutive day that the market rallied higher. Specifically, the OI in the Aug dropped by over 5500 contracts with total OI down about 1700 cars. Note that the close yesterday was well off the session highs in the most active Aug LC. Cash steer prices appear to be stabilizing but we consider it unlikely for them to simply turn higher at this time of year. Beef demand will not be good over the next 30 to 40 days. We also believe there’s lots of over finished cattle in the feedlots. Beef is expected to grind lower during July and likely be forced to below $200. We’re holding hedges in the Aug LC and in the Aug and Oct FC. I’d look for a lower market today.
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