Short-Covering Seen for Lean Hogs Ahead of USDA Report
????? Fundamentals
Lean Hog traders have been in a bearish mode for months, as large inventories of pork in cold storage combined with weak seasonal demand have pressured prices. However, we have seen some signs that the bear market is beginning to tire.
Though the start of spring has so far failed to bring warmer temperatures for most of the U.S., longer range forecasts are starting to call for warmer temperatures in the Midwest and the East Coast, which should spur increased demand for both pork and beef as the start of the grilling season commences.
In addition, many analysts note increased short-covering buying as traders square positions ahead of two major USDA reports to be released on Thursday. First up is the highly anticipated planting intentions report. Here expectations are for U.S. producers to dedicate large acreage to both Corn and Soybeans this season, increasing the potential for a record harvest in both crops should Mother Nature cooperate.
The potential for record production this season should provide some relief for livestock producers, as the potential for lower feed costs due to larger supplies, may encourage a rebuilding of the livestock herds that were reduced due to high feed costs. This outlook should be near-term supportive to Hog prices as more animals are being kept for breeding and not sent to market.
Also on Thursday, traders will be awaiting the release of the USDA Quarterly Hogs and Pigs report, which will give a glimpse to the current and potential size of the U.S. Hog herd in the coming months.
???? Technical Notes
Looking at the daily chart for June Lean Hog futures, we notice what appears to be a ?V? bottom technical formation. Also note that volume ?spiked? as recent lows were made, and prices later reversed to close higher on the session. Since that time, we have seen a nearly $4 per hundredweight upside rally, as weak bears have covered short positions.
Though prices are now trading above the 20-day moving average (MA), we are still nearly $5 below the 200-day MA, which is hovering near the 96.500 price level. The 14-day RSI has moved out of oversold territory, and is now reading a rather neutral 51.20. The ?spike? low of 87.100 looks to be strong support for June Hogs, with resistance found at the February 21st high of 92.625.
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