Strong Expiration of Feb Hogs Sets Stage For Higher Apr By Dennis Smith


Tuesday, February 15, 2022 


Selling is pounding grains early today as tension ease on the Russian front. IMO, Putin wants the Donbas region. Russia is about to declare this region as independent states allowing him to take over control of the regional government. He’s created such a mess with the troop build-up, everyone will simply say “take Donbas” but pull the other troops back. He’ll get what he wants. The trouble is, no one really knows what he wants. The selling could easily accelerate in corn and soybeans. These markets are loaded to the gills with speculative length. I’m hoping for a hard break in soybean oil to allow our orders (penciled out below) to get filled. I remain long term bullish wheat. If the funds blow out of corn it should provide an opportunity to establish some bullish positions in the Sep corn options.  Be prepared, the break in both corn and soybean futures could be very substantial.  

  • Look to establish the May bean oil 64/71c/62p three-way risk reversal. The initial margin is $1,750. Perhaps working orders at 25 points ($150 premium outlay) will get filled on a pullback today.  


Open interest dropped by 770 cars in hog futures yesterday. Feb went off the board with nearly 10,000 cars outstanding. Our Feb bull call spreads did very well. Many of these were established back in Sep. The potential of HPAI (bird flu) in the Midwest is bullish. The last outbreak occurred in 2015 when more than 50 million birds were culled. Thanks to the phase one trade agreement, China can only ban poultry imports from Indiana and KY. In 2015, upon the first outbreak, they automatically banned all poultry imports from the U.S. Phase one is a huge help in this regard that most do not realize. Look at the way Feb hogs went off the board. Gapping higher and settling within 15 points of the contract high. Apr futures, recently as much as $17 over Feb are now only $11 over. I’m very bullish hog futures and look for Apr to lead the charge upward. Packers are chasing pigs with the supply simply not great enough to satisfy current demand for pork. Short term inelastic demand will keep cash bids moving higher to sharply higher. Longer-term, I visualize that pig prices will bottom in China and likely soar higher, as their production falls off a cliff. If this happens, summer hog futures will challenge $130. The best and cheapest way to get long is through April calls, IMO. Recent activity in hams indicates packers are fully sold-out ahead meaning the chase for hogs will continue.  


The outlook for a higher cash steer market this week should support LC futures today. The weekly kill is projected to match last week (656 vs 659). IMO, given improved labor issues and highly profitable margins, the weekly kill may surpass 660k. Mark it down and let’s see if I’m correct, come Friday afternoon. Beef is stabilizing in the face of rising production. This is a very bullish development. The strongest demand timeframe for beef is just around the corner. With corn futures expected to break down (by me) look for feeders to shoot sharply higher. I’m waiting and watching for a weekly close in Mar FC above 16800 which will target a move to 190. We are positioned accordingly. While I’m bullish we are recommending some hedging activity in the summer cattle options. It’s a dangerous world out there, full of risk. Our hedge strategies are penciled out in the evening livestock wire.  

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