This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Thursday, September 25, 2014.
I am sitting here watching my screen bleed itself to death and the contrarian in me is looking for something to buy.
Grains? Wouldn’t touch the long side with a 10 foot pole until we get through the month of September.
The ES? Buying dips in the ES has been very easy since 2008, but with QE ending in October and the election creeping up, I’m staying away from all equities for now.
Currencies? Maybe, but I wouldn’t fade the dollar at this point. 85 on the DX was broken and with Europe in the toilet economically and Russia cranking the tourniquet, I would keep my cash in greenbacks.
Crude? Have you seen how much crude we have on hand compared to the last few years? Check out the graphic below. Besides this, were past August and Crude usually isn’t a buy in my eyes until after the new year.
Metals? Not with China stopping construction of ghost towns and the US entering what could be a tightening phase.
Cotton? No sir, not with China claiming to be getting out of the import biz – LINK
Meats – OK, now were talking. Cattle is certainly something worth looking at on breaks.. The people I talk to tell me there are no cattle around. This is a market I feel comfortable buying on breaks, but we haven’t really had much of a chance. Feeders look attractive as well, but with prices at all time highs, I cant get too excited buying this market either. Cattle on feed usually bottom in September.
That brings us to hogs. Hmmm, bacon. Hogs are down because the cold storage showed ample supplies of pork in freezers and the idea that the herd has been rebuilt since last winter’s PEDV debacle and the vaccine that exists. That certainly isn’t bullish, but keep in mind that product has not seen massive increases in supplies rather its been fatter animals and I have heard the vaccine is hit or miss at best. On Friday, we will find out if that is still the case. During the last quarterly report in June, we saw a drastic drop in the breeding herd because of PEDV. On Friday, we will see if the virus is still restricting supply.
While hog supplies will most likely be higher, I am willing to bet the herd is still not big enough. The cash market has remained very strong, with Oct hogs trading near 107. December hogs were as high as 105 earlier this summer and have corrected and I know the PEDV hasn’t gone the way of Polio, according to my sources. Technically, I love seeing that gap up at 102. I think that gets filled before the contract expires.
What’s my play? I’m buying December call options before Friday. Pick your poison as far as strike. I like call options because if I’m wrong and the herd has grown more than I expect, we could see a washout with limit moves down, especially if the bottom trend line gets broken. I don’t care to hold futures and pray I’m right. Keep your risk defined. Besides these are Dec Hogs, the options don’t expire until December.
I like buying cheap out of the money calls, like the 102’s for about 1.30. If the report is bullish like it was in June, I think we see 102 within a few days/weeks. At that point you can either take profits on the position or use that call to sell futures against and ride it back lower. The options are limitless, no pun intended. Sound like a plan? If you like it, give me a call and we can talk more about it.
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