Wednesday we saw February hogs push to new highs with April hogs back up and testing January highs. This is due to bullish demand factors in recent weeks. While this is good news for the bulls, traders need to remain cautious on the outlook for a hefty supply ahead, which could turn the cash tone lower. According to the monthly USDA update, the USDA increased their 2018 pork production projection to an increase of 5.4% from 2017 and first quarter production is expected to be up 4% from last year. The bounce in pork product prices has helped provide underlying support. However, the supply outlook looks a bit burdensome in the weeks ahead. Traders should consider going long Feb lean hogs 67.00 puts from 40 points each and use an objective of 80 points for each or, 80 points on the first one and 190 points on the second. Risk 80.
Lean Hogs Feb ’18 Daily Chart