|
| Old crop wheat inverses continue overnight. The real meaning is the “market” wants the wheat now & old crop carrying charge premiums are gone. We may now in a real demand scenario & the daily swings will relate to tightness or availability of old crop supplies & new demand or lack thereof; if you have access to charts of the early 70’s, these spreads can get pretty fancy. December can be a difficult month due to year end book squaring & a year ago, tax selling immediately into the new year bumped the markets a bit & traders remember that & may not be anxious to push this market late in the month. Depends on real-world demand.
China, according to what I read this morning, has cancelled the grain export tax incentives-which has been rumored for several days.
HOGS:
I have not traded hogs for several years, but have brought my data up to date & I use a variety of statistical measures to get a grip on the long term: however I have not yet made a definite conclusion as the situation is ‘sticky’ to the degree I want to also plug in the latest on beef & poultry. Will take me a day or two to finish.
Initially, on the surface, the hog situation looked pretty grim. However, as I dig further, is see some possibilities which interest me.
In the very short run: for only hedging purposes & technically…If I were sitting on unhedged hogs, I would be a seller of February on a scale up between $60 & $64, if possible, before the pig crop report, but ONLY for THE SHORT TERM.
On the other side, if April would close below $64.85 it would suggest to me the market is going to seek lower ground in the short run. However, I would be very reluctant to sell this market in a hole.
On the positive side, this hog market has chewed through a lot of tonnage during the current quarter and has not completely fallen apart.
The August looks like it is in a wide trading range and if I were a ‘quick in & out trader’ (which I am not) I would be tempted to be a buyer at $72 or slightly below. But, I’d be out if the market closed below that level.
The circumstances in the hog market are obvious. Either dressed weights need to be reduced, or the market needs to see a heavier rate of sow kill.
Some thoughts: (all BIG IF’S)- If farrowing intentions are lower in this next report, meaning we have already witnessed some liquidation & we see a slight reduction in kill weights Plus if this next monthly slaughter data indicates a few more cows are headed to slaughter & steer/heifer weights back off just a tad….the entire picture changes.
Othere BIG IF’S: However, if these higher feed prices initiate a liquidation phase for the next couple of months, then any buy ideas have to be sidelined until the “big price flush.” As in all markets, higher prices allow for orderly producer marketing & 'disorderly' actions (mild or extreme panic) by buyers; lower prices motivate disorderly marketing by producers and orderly buying by buyers.
The question of which I do not know the answer, are these grain prices going to encourage these large production operations to reduce farrowing intentions by a few per cent? I doubt kill weights will decline much, but in view of the numbers, a couple of pounds (average) does make a difference.
Bottom line: I am not yet done with the total picture, but should be within the next day or so.
The change in beef tonnage between the 4th quarter of 2006 & 2nd quarter of 2007 was an increase of 6%; the estimated change this next swing is 3%.
The change in pork tonnage between the 4th quarter of 2006 & 2nd quarter of 2007 was a decline of 8.9%; the estimated change this next swing is a decline of 10.3%.
The relationship between 4th quarter prices and the following 2nd quarter in similar years: 1982,1984,1990,1996,2000 was a price advance from 4th quarter lows of between $7 & $14. These are averages. During most of these previous similar years, cattle prices were on the weaker end relative to hog prices (historical index).
The hog market faces and increase in tonnage in the 1st quarter of this year but the beef tonnage will be steady to slightly less. While pork tonnage will reflect increased tonnage thru the third quarter of 2008, beef tonnage should remain relatively flat.
These are all longer term factors which can change and have significant market impact. I'll have more specific thoughts in a couple of days.
| |
|
Idle Thoughts & pigs
