The IHS Markit’s Purchasing Manger’s Index (PMI) for US manufacturing activity increased 0.7, from 50.3 to 51.0 in August. The increase was better than expected based on report estimates. On the flip side the PMI data for Europe was generally weaker. Stocks were lower in the overnight when the European data came out and then rebounded earlier this morning when the US PMI was released. Gold is up $17 this morning and I think a lot of it has to do with European growth concerns. We also learned this morning that China did not cancel US farm visits because trade talks were not going well. Chinese officials said they are making progress with the US but I have not seen an official explanation of why China did cancel the farm visits.
Grains & Oilseeds
Soybeans are leading the way, up 12 cents as of 10:15 am central time. Nov Soybeans were up 16 at one point and testing $9.00 but back off shortly after the morning open. Chinese officials have said recent trade talks with the US have been “constructive” and “productive”. November continues to see stiff resistance at $9.00. We like selling new crop soybeans at $9.20 as a spec play and to book new crop sales for farmers. If you are a farmer and are going to store new crop soybeans, I would look to sell the $10 July Soybean calls on 10% of expected production. They are about 23 cents right now. This is a margin position. Make sure you have the soybeans to back it up. If soybeans get to $10 you have to be prepared to make a sale. I don’t think we get close to $10 soybeans but you never know. There is US yield risk right now but South America is going to plant a lot of acres AND we still have to deal with the ASF demand issue in 2020.
Cattle on Feed was bullish on Friday. Live and Feeders are higher but have backed off from the strong open. I think Feeders are the stronger of the two. FC is now in a bullish trend while LC is reversing but needs to fill the gap left on the chart from the Tyson plant fire. Winter is seasonally a bullish time for livestock and we live cattle into the first quarter of 2020. I like the Dec vs June LC bull spread and I like bull call spreads for Feeders and Fats. The world is going to have a protein crunch due to ASF. Beef will be in demand as pork continues to be in short supply outside of the US. Hogs are up today but seen as a follower to cattle.
Dec 19 vs June 20 Feeder Cattle
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