Today’s Spotlight Market
Large speculators continued their long liquidation selling in Lean Hog futures last week at the same time both commercial traders and small speculators were covering short positions as prices plunged. The most recent Commitment of Trader?s report shows non-commercial traders reduced their net-long position in Lean Hogs by just over 6,900 contracts. This still left these large speculators net-long over 71,400 contracts. On the other side of the trade, commercial and non-reportable traders reduced their net short positions by 4,560 and 2,349 contracts respectively last week.
Fundamentals
It has been a long summer for Hog producers in the U.S. as prices have plunged since highs were made back in Mid-June. The front month August futures have seen prices fall over $15 per hundredweight since the June highs as traders are pricing in a larger than anticipated Hog herd. Lower prices are more prevalent in the fall and winter month futures with the December 2016 contract falling below $60 per hundredweight compared to the CME 2-day Lean Hog index for July 22 which came in at 76.45. Both Pork and Beef inventories continue to increase as producers have been taking advantage of lower feed costs to increase production. The U.S. Hog herd is at record levels for this time of year adding to price pressures as meat packers are becoming less aggressive in bidding for market ready hogs despite good profit margins. More processed pork is ending up in cold storage which will add to what is expected to be already burdening supplies later this year. The latest cold storage report shows pork inventories at 585.9 million pounds which is 3.7% higher than the 5-year average for this time of year. While it is starting to appear that long liquidation selling has finally abated as prices reached extreme oversold levels, and we are still seeing solid Pork imports out of China, sustain price rallies may be hard to come by in the coming weeks as long as the looming large supplies of hogs are on the horizon. This could be a fine opportunity for those die-hard barbecues? to stock up on both beef and pork now as the upcoming Labor Day holiday is a mere 6 weeks away!????? ?
Technical Notes? – View Today’s Chart
Looking at the daily chart for August Lean Hog futures, we notice prices on a one way downward slide since mid-June when the contract highs were made. Despite the nearly 6-week sell-off, we are just seeing the 20-day moving average (MA) appear ready to cross below the 200-day MA. However, we have recently seen prices attempt to rebound off of 2016 lows and the 14-day RSI remains in oversold territory with a current reading of 26.75. We note that Trading volume has decreased sharply the past several trading sessions as it appears that the long liquidation selling in the August contract has exhausted itself as trading begins to shift into the October futures. With the August futures now trading at a modest discount to the 2-day CME Lean Hog index, any signs of a price recovery in the cash market could see the August futures begin to rebound as we head towards expiration on August 12. The recent low of 73.825 made back on July 22, is now acting as support for the August futures, with chart resistance not seen until the July 13 high of 80.375 is reached.
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