wmeubank@ocp.kcmo.com
(May 9, 1997) LEAN HOGS: Short-covering and fund buying based on rollovers from June to July sent July hogs to a new high. Cash markets were softer due to wet weather in the midwest. Farmers took advantage of the downtime to bring hogs to market. Lately we've been faced with action that is best described as rangebound. Profit margins for packers are deeply in the red. I'm beginning to wonder if this move is near over. Remember the old adage <169>buy the rumor, sell the fact.<170> Farmers being busy in the fields is supportive to higher prices, but the cash market has no retail base. Gains may be difficult to sustain. The premium of the futures to the cash market remains a serious hazard. I would continue to view this as a short-term vehicle. Sell July hogs on rallies to the mid-8600's with stops of 100-150 points. Look for a break to 8540- 8560, possibly to 8475 or so. Option traders should look for a hard break to buy October calls.
M. Steven Morgan
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