Lean Hog Bulls in Charge Ahead of USDA Report
Today’s Spotlight Market
Large speculators continue to add to existing long positions according to the Commitment of Traders (COT) report. For the week ending March 18th, non-commercial traders held a net-long position of 107,440 contracts. This is an extremely large net-position for Lean Hogs, which appears to signal that large trend following traders are still anticipating further upside price potential despite prices that are at or near all-time highs. Commercial traders are mainly on the other side of the trade, which is not surprising given the current profitability margins of both producers and meat packers given current prices being paid for cash Hogs as well as wholesale pork. Small speculators appear to be playing the role of top-pickers in Lean Hogs, as the relatively small net-short position seen in the COT report suggests.??? ?
Fundamentals
Following a much needed price correction earlier this week, Lean Hog futures prices have resumed their bullish trend, as traders square their positions ahead of the Quarterly Hogs and Pigs report due out this afternoon.? Analysts and traders expect a significant decline in the size of the Hog Herd as of March 1st, with average estimates of a 5% plus decline from last year. Hogs kept for marketing are expected to show an even bigger decline on the order of a 6% drop from year ago totals.? Strong Hog producer profit margins should allow the number of Hogs kept for Breeding near last year?s totals, with average estimates calling for a modest 0.5% decline. The devastating effect of the PED virus may be fully realized in late summer when the potential for very tight hog supplies could cause slaughter rates to decline sharply heading into the Labor Day Holiday. While 2014 should see retail pork prices near or at record levels due to tight supplies, the outlook for 2015 is a bit more favorable for the consumer as the U.S.? Hog herd begins to recover. ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for June Lean Hogs, we notice the parabolic price move, as prices moved quickly from just over 105.000 to nearly 134.000 in about 4 weeks time. Prices have since corrected somewhat, but a limit-up move the trading session prior to the USDA Quarterly Hogs and Pigs Report shows that bearish traders are heading to the exits in what is anticipated to be a bullish report.?
We note that the recent price correction was halted by an unsuccessful test of the 20-day moving average, which should put this indicator on the radar of short-term technical traders. The 14-day RSI has finally moved below extreme overbought readings seen last week but remains at a very strong 69.21 as of Thursday?s close.? Contract highs at 133.425 remains the next resistance level for the June futures, with support seen at the March 26th low of 123.000.
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