Grain Spreads: Mid Term Reaction/2027 Outlook

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Gold

We think the stock market will rally as gridlock is seen as a good thing. Trump will rule by executive order, the Dems will sue and try to stop him, and not a lot will get done. Meantime the economy will continue to grow well, and earnings will grow pushing stocks higher. The slowdown in data center development will be seen by the market as a good event as it relieves the pressures on the debt markets and lets the existing ones raise prices further. However, the dollar will decline which is not good for inflation. Spending bills will be passed, but all will be vetoed leading to massive battles and shutdowns. It could get very ugly for the next two years. Cutting regulations will be all the rage. That will not help inflation or housing. Gold should do well now in this environment in our opinion.

Buy the April 2027, 5500/5600, call spread for 2 points or $200 per spread plus commissions and fees. I’m not calling for Gold to retest all-time highs in this time frame. But a 50% retracement is warranted in our view is to the 4700/4800 area. Consider the following trade

Buy the April 5500/5600 call spread for 2.0 points or $200 cost and risk, plus commissions and fees. Suggested entry 10 spreads.

10 call spreads at 2K per spread is 2K cost and risk plus commissions and fees. We will work offer at exit at 2k per spread at exit or 20K on 10 spreads less commissions and fees.

Natural Gas

Gas has been stuck in the mud since last winter with no direction. However, LNG is now a product in very strong demand across the world, and the Japanese are investing billions in US sources to assure themselves adequate supplies. As a result of the war countries are ramping up efforts to secure other sources and the US is the beneficiary. These are permanent investments in US supply, not just temporary buying. It assures the US will now be a major supplier to the world of LNG on a long-term basis. Many LNG CEOs have been quoted that they see supply and demand moving near parity deep into 2027 while at present, we see supply exceeding demand by approximately 30%.

Suggested Entry-10 spreads

Buy the October 2027, 5.00/6.00, call spreads for 3 points or $300 per spread.

Looking for a 10/1 return to sell the call spreads at $3000 per for a gain of 30K, less trade costs and fees.

Live Cattle

Placements into feedlots have been down for the past 6 months and likely will continue along that path. This months on feed number was also down from last year. This has kept pressure on production which has been partially supported by increased carcass weights. This hasn’t been enough to take care of consumer demand leading to record imports. The record imports and anticipation of a continued need to increase imports next year keep the highlight on the tight fundamentals. With consumer demand expected to remain strong into the next year, we expect the packing industry to lose control of the cash market as we move towards 2027 and into the spring demand season. With that in mind we have the following trade idea:

Sell the April Live cattle 250/230 put spread for 1600 points. The maximum risk is 400 points per spread. Suggested risk is 250 points on a GTC stop loss or 1K per spread plus commissions and fees. Look to buy back at 800 points for a 800-point gain or $3200 per spread less trade costs and fees.

Margin 1119.00 per spread.

Feeder Cattle

Feeder Cattle supplies are tight in my opinion and producers have been aggressive in purchasing cattle as a result. With numbers expected to continue to be tight, our expectations are for buyers to remain aggressive in the feeder market. We are looking for the market to bounce back and here is a trade idea for the Feeders:

Sell the March Feeder Cattle 350/330 put spread for 16 cents OB. Risk no more than 250 points per spread on a GTC stop loss. Work to buy back the spread at 7 cents for a gain of 9 cents per spread or $4500 per less commissions and fees.

Margin per spread -$1328.00

Hogs

Funds are record short in the hog market and at some point, they will cover their short positions. We are coming into the holiday seasonal and we expect ham demand to support hogs in the near future. This could spur the shorts and lead to a recovery in the hog market. Spring and summer hog prices are in the low end of their trading range and with the cash market putting in lows we haven’t seen since 2021, producers will not be enthused to increase hog supply and with feed prices expected to be strong, they will likely keep weights down. We expect hogs to bounce back as we move forward and here is a trade idea:

Sell the July 2027 hog 110/95 put spread for 13 cents or a $5200 collection. Maximum risk is 200 points or $800 per spread plus commissions and fees. Work an order to buy the spread at 6 cents or $2800 per, less trade costs and fees.

Margin 538.00

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