Bears’ Pork Feast Coming to an End?
????? Fundamentals
Bears have been licking their chops over the performance of Lean Hog futures this year, with the current front month April futures down over $10 per hundredweight, as higher Hog weights and export concerns have weighed on prices.
In December of last year, Russia announced it would ban the imports of U.S. beef, pork, and poultry due to enforcing a zero-tolerance policy on the use of Ractopamine in livestock. Ractopamine is a drug used as a feed additive to help promote leaner muscle mass in feed animals.
Though it is approved for use in the U.S and in many other nations, it is restricted by the E.U, and now Russia is also enforcing its ban. Should other nations join Russia in banning pork produced with Ractopamine, it could be very detrimental to U.S. Hog exports, which account for nearly ? of U.S. production.
Market-ready Hog weights have been running well above average lately, which is adding to pork supplies and allowing some meat packers to purchase fewer Hogs to meet demand. A recent up-tick in wholesale pork prices may be a sign of improving consumer demand. If true, we could see increased packer purchases of cash hogs in the coming weeks, as profit margins have become positive due to the sharply lower cash Hog prices.
???? Technical Notes
Looking at the daily chart for April Lean Hogs, we notice prices trading at lows not seen since May of 2012, as a “perfect storm” of weak exports and high Hog weights produced large supplies.
The 14-day RSI is well into oversold territory, with a current reading of 26.93. The May 2012 low of 79.475 looks to be the next major support level for the April contract, with resistance not found until the 20-day moving average, currently near the 84.775 price area.
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