Written Commentary
LEAN HOGS:
Futures volume yesterday was only 48.1k with open interest down 386 cars. Apr pigs scored fresh contract lows. Funds are holding a record large net short. The news is very quiet. The 640-report was very positive regarding exports in Thursday’s weekly export sales report. The weekly kill is projected to come in at 2.389 million pigs, down 100k from last week. This might trigger some short covering. Cash was quoted lower but a revision this morning indicates cash was actually up .75. So perhaps the fuel is there to force some shorts to cover. I’d have to see a close in Jun above 9400 to make me think something significant was happening. No rec.
LIVE CATTLE:
Open interest was up 4,852 yesterday on volume of trade reported at 73.4k. I did not see anything interesting in LC or LH option trade from yesterday. It appears that buyers were waiting and they were active as prices setback yesterday. We stepped into additional May LC call spreads. I recommend being prepared to add again today on weakness if it develops. I suspect weakness will be early in the session and short lived. There was no cash trade reported. Packers can pull on forward contracts this week, but April contracted cattle numbers are down 25% from April of last year. In the meantime, beef was quoted strong yesterday and will likely be higher again today. Margins have narrowed but they’re likely still positive, which is amazing. Beef demand, unlike pork demand, is excellent. Look for a specific “add” recommendation in the midday report if futures are trading lower. The recommendation is to stay bullish.
GRAINS:
Wheat is slightly higher with corn and soybeans lower early today. The weather pattern is going to open for spring planting starting next week. Of course, the Dakota’s have a ton of snowpack to melt away first. The moisture re-charge is real. The Corn Belt needed the moisture this winter and got it. The drought remains in place in S.W. Kansas, OK and the panhandle. Winter wheat is rated only 28% good to excellent, the second lowest crop rating ever. Of major concern is the fact that 36% of the crop is rated poor to very poor. Many of these acres will be abandoned or planted in corn. Keep in mind that July KC wheat is trading $1.00 off the lows. So, IMO, further upside will be dependent upon continued drought. I’m long-term bearish toward corn and soybean prices, especially corn. Other than our new crop corn hedges, and the short May 670 calls and 590 puts, we do not have any spec corn positions on the book. My next play will likely be Sep corn put spreads.
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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