Large Downward Revisions in Hog Kill, By Dennis Smith

Tuesday January 30, 2024


The drought maps are improving and there is rain in the forecast for the Great Plains and Corn Belt approaching spring. My long-term weather guy is calling for a very wet April and May in the Corn Belt. Brazil is rapidly harvesting a record large bean crop and the corn planters are running 100 yards behind the combines. Harvest is more than 11% complete and the second corn crop is 11% planted. A downward spin in corn prices is expected to remain in force. The next big seller is likely going to be the farmer. The bearish three-way risk reversal in Dec options traded last night at 4 ¼ cents. I’m thinking our orders as penciled out below will get filled today.

  • Establish the Dec corn 480/400p/500c bearish three-way risk reversal paying 4 cents. The initial margin is $1,000. 


As I reflect back on what happened yesterday my outlook for a pullback in futures this week appears to be misguided….wrong. Cash was not quoted yesterday and the product held steady. Most telling of all, however, was the huge downward kill revisions from Friday and Saturday. Each was revised down 15k. Margins are highly profitable. This tells me that the hogs are simply not there. They wanted and intended to kill 2.719 million last week but only managed to put down 2.689. If you own pigs, because of where we are on the charts, you should own some puts. If you’re a spec, stay away from the puts and prepare to buy calls or step into a call spread. Cash is called steady for today. Futures should start out mixed. 


Open interest was up 541 in live cattle yesterday. There was nothing real obvious in the options trade. Feb calls increased by 1,555 which is real surprising given that they expire Friday. Feb 178, 179 and 180 calls were all active and saw open interest increase nearly 1,000. Apr puts increased 1,215. There was no cash steer trade with asking prices clustered at 178 and $280 dressed. The beef backed up slightly yesterday but the margins, we believe, are positive. The inventory report should be positive, and it should confirm a record small number of cattle outside the feed yard. The weather pattern continues to show a high chance for vast improvement in drought areas that hold cattle. This will tend to restrict (slow) placements and stabilize the cow kill. January placements should be sharply lower. My next play is working out of our Apr call spreads, taking a profit. If feeders pull back again today, I’ll look at establishing a Mar bull call spread. Look for something in the midday pork and beef update.

  • Start working orders to liquidate the Apr LC 185/190 call spreads at 170. (paid 70 points on Dec 6)


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