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Ukraine's unrest pushes up corn prices
Corn had a wild ride today as the media controlled the markets. Shortly after the open we saw corn move lower, which after yesterday’s price action made sense. The rest of the day saw the market turn and grind higher throughout the session settling at 463 1/2, up 9 cents from yesterday’s close. The sudden turnaround was due mainly to the unrest in Ukraine, the number 3 exporter of corn in the world. With Russia sending troops into 2 of Ukraine’s airports fear of escalation lead to short covering and spec traders jumping on board not only in the corn market but beans and wheat as well. News of the Renewable Fuel Standards mandate is due out and projected to be bullish for the markets lent some support as well. Monday’s market will most likely hinge on world events occurring over the weekend…Scott Donarski
(2/24) Bought July/Sold December corn spread at -2 (2 cents to December), risk to -7 1/2, objective +16 1/2
Lean Hog Commentary
Summary: Judging by anecdotal reports, and confirmed by the $12 rally in cash hogs over the past two weeks, packers are pretty much chasing after every single hog they can find right now. It is not just for short term delivery. There is a clear and concerted effort to get numbers lined up before market ready numbers fall off the PED cliff. It is interesting to see how early they have started these actions too. Slaughter levels typically stay sideways during all of March then start the decline into summer once April rolls around. We cannot ignore the fact that some of this rally is a cattle issue. Wholesale beef is a whopping 21% higher than last year. There is no doubt some end users are seeing pork in a more favorable light. This week’s announcement the Russia would restart buying US pork this month also helped. It is not THE driver but certainly a few sprinkles on the cake make it look better. Beyond these issues though, the tremendous uncertainty with PED is still the main question. The industry is very concerned that the coming decline in supplies, set for April, will be exaggerated by massive PED problems. For those asking there is no slaughter problem right now. This week’s kill was 0.3% over last year. Due to weights, our pork production ran 3.0% higher than last year. Again, so far there is no PED problem in the slaughter mix.
Unknown Production: Earlier this week we were pretty excited that a solid livestock market report in the industry was gathering analyst estimates for the entire 2014 production period. We had hoped to actually see, in print, the trade’s expectation for when PED will actually hit as well as the severity of it. We happily submitted estimates of where slaughter would have been without PED as well as with PED. Our submission was 114.850 million head which would be 2.4% over last year with NO PED. We currently forecast the actual 2014 period at 110.712 million, 1.3% less than last year. By quarter, that is made from Q1 +1.1%, Q2 -1.1%, Q3 -2.4%, and Q4 at -2.5% vs. last year. In other words we suggest PED will lower slaughter by 4.1 million head (3.7% reduction). We were informed today that the survey has been set back for a few days to help bring in a few extra submissions. After a full week jump in, the pool is too cold so to speak. As it stands the industry can not quantify whether slaughter will be 1%, 3%, or 5% lower than last year during summer. The market will simply say “buy” until someone can argue otherwise.
Pricing: We now have cash hog prices over $100 and we have not even gotten into summer. Summer futures broke into the $112 territory this week which was the floor’s most bullish upside target just four weeks ago. Is this market getting ahead of itself? Next week we will update price projections based on our production estimates. Additionally, we will reverse engineer the CME’s current pricing to show you where it believes production will hit. For trading, we certainly advise against selling any contract here. Whether to get back in on the long side at these prices…that will be discussed next week…Rich Nelson
(1/3) Sold 2 Jun 96.00 puts 1.95, risk to 1.97, objective 0. Closed 0.27.
(1/24) Sold 1 Jun 98.00 put 2.02, risk to 2.10, objective 0. Closed 0.42.
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