Hog Weights Dropping, Not Backing Up

GRAINS:

I had a nice day off. Wheat prices bottomed out while I was away. What a pleasant development. A Russian invasion of Ukraine looks imminent. Nothing is in the way to stop him. The disruption to the corn and wheat trade is bullish. I’ve been talking about this and projecting this for weeks. My guess, an invasion happens just as the Olympic games come to a close in late Feb. March soybeans are back above 1370. They won’t stay down. I have no adjustments to recommend early today. I’ll possibly liquidate the bearish soybean position by the end of the week. Recommend holding the bullish wheat. We have no position in corn. Producers should be pricing and owning Nov soybean puts.

LEAN HOGS:

Don’t believe everything you read or see in print. The USDA cutout value reported last night is a bogus calculation. They used an 11 cent lower ham primal. Looking at the data, all hams were quoted higher to sharply higher. Boneless product was sharply higher. How the USDA came up with the sharply lower ham primal is a mystery. Look for higher cutout for the rest of the week as the pork pipeline is cleaned up, slick as a whistle. The weekly kill is projected to come in at 2.476 million pigs, down about 9% from last year. Many/most believe this is solely due to Omicron. It’s not. A majority of the downturn in the kill is simply due to the fact that the hogs are not there. Average hog weights, released this morning, were down nearly 1 pound from the previous week and they’re now down a half pound from last year. THE HOGS ARE NOT THERE. In other words, we are not backing hogs up. IMO, this year will be compared to the PEDv year, 2014. Hog futures will likely shoot sharply higher. I won’t be surprised to see Feb gap higher today. Major resistance is 300 points higher, at 8460. Feb hogs stand a high chance of testing 8800-9000 prior to going off the board. Recommend to position accordingly. I nearly forgot, OI was up 2,063 on the higher close across the board yesterday.

LIVE CATTLE:

Feb lost 4,300 cars yesterday, but all other contracts saw OI increase, Total LC OI was up 86 cars. LC futures are coiling for a major price advance, IMO. Off this Omicron break notice the series of higher lows over the last five sessions. Also note that both Feb and Apr held the important Dec lows, the seasonal lows. The deferred contracts never got close to their Dec lows. This week’s kill is projected to come in at 630k compared to 618k last week. I did some digging and reflecting on my day off. The kills have been trimmed by about 6% due to Omicron. My sources are predicting that Omicron will peak within a couple weeks. It will come and go as quickly as it flared up. Packers, with huge processing margins, will be able to make up the kill by expanding the Sat operations. A major backlog in the industry is unlikely. Selling aggressively, for fear of a repeat of the spring of 2020, has not been advised by us. Instead, we’re using the weakness to add to bullish positions. In other news, cattle prices in Brazil are record high. China has been a huge buyer of Brazilian beef over the last couple years. However, they’ll only accept beef 30 months of age or younger. Because most of this is grass fed beef, ranchers have been forced to slaughter heifers, huge numbers of heifers to meet the Chinese demand. Bottom line, despite rising demand, beef production is headed lower, not higher in Brazil. Australia is also looking at very high cattle prices. Due to drought, they’ve already liquidated their herd and they’re now starting to re-build, retaining heifers, further reducing their production. The U.S. and Canada, for multiple reasons, have been culling the herd for more than a year. Finally, IMO, U.S. exports for 2022 are under-estimated. The world is looking at a beef shortage just around the corner. On any weakness, recommend the option position below even if you have to pay more than 100 points to get it established.

• Buy Oct LC 140 calls/sell 152 calls/sell 134 puts at 100 points.  

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