In hogs; high prices do not cure high prices, By Dennis Smith


Wednesday, February 23, 2022 


Palm oil has moved into all-time record highs for the third consecutive session. This continues to put a charge into soybean oil and thus supporting the soybeans. However, meal is also higher early today. Corn and wheat are slightly lower. Certainly, there’s no sign of a change in trend yet. When the trend changes from higher to lower, it won’t be gentle. March corn futures have 164k in open interest with FND on Monday. We exited all wheat bullish positions yesterday. My spin on the Russian deal is that Putin wants the Donbas region and he’s not going to trigger a full invasion of Ukraine. I consider the U.S. weather pattern as supportive to wheat, but I’m always interested in banking profits. Having said that, I’m not interested in exiting the bean oil at least right now. No other rec other than soybean producers should be constantly pricing Nov puts. Roll them up as well.  


I was wrong about the buyers in the hog market yesterday. Open interest surged higher, up by 3,137. So, hedgers were not blowing out of long-held shorts or at least that was not the mean feature of the buying yesterday. Look for the CME to increase margins soon which will put further pressure on the short hedger and further stretch credit lines. Remember this; low prices cure low prices. However, high prices do not always cure high prices. High margins is what cures high prices and feed costs, death loss, massive losses in the wake of COVID, etc have all worked to set this bullish market into motion. There is no expansion occurring at this moment in the U.S. hog industry. My next target to unwind positions (calls) is the range from 120-122 in April. Summer hogs are headed for 130. Sit tight and go for the ride. Any sharp pullbacks will be a buying opportunity. The hardest part will be doing nothing for a while. I nearly forgot, the cold storage shows the smallest stocks in four years and we’re going into a summer season with tight to very tight butcher hog supplies.  



Open interest was lower in Feb and Apr LC but higher in all other contracts. Total OI was up 1,857. The uptrend remains intact but seemingly on hold. I’m expecting a firm to higher cash steer trade for this week. The beef is below levels that I expected to hold ($265). My sources are suggesting that beef will likely bottom out sometime next week. IMO, futures are about to break fairly hard, and this will set up another huge buying opportunity. We’re in danger of getting stopped out of our long May feeder position. IMO, feeders would rally sharply if the corn market would top. At this moment, there’s no sign of a top in corn prices. Recommend liquidating all remaining long positions in the Oct LC, taking the profit and then preparing to buy the break. We’ll buy Oct and Feb 23. The beef boys are still culling cows at breakneck speed. Production, long term, is headed lower. The on-feed report comes out Friday. Look for a table of the estimates in tonight’s wire.  

  • Take profits on remaining Oct LC long-held long futures positions.  


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