wmeubank@ocp.kcmo.com
(May 7, 1997) LEAN HOGS: As slaughter numbers and runs come in lower than anticipated almost daily, ideas of decreasing domestic demand may become moot. Traders expecting an increase in marketings due to producers spending the majority of their time in the fields, sold the June lean hogs down to a short-term low of $8270. However, once it became apparent that marketings weren't increasing and that weights were not going up, the June lean hogs made their way back over the $84.00 level. Because of this we're starting to hear talk that the USDA may have overestimated the number of hogs in the last few Pig Crop reports.
With packers profit margins deep in the red, we've seen them cut back on slaughters for the last few weeks. Yet hogs are not backing up and we're seeing cash remain firm, indicating that supply might not be as large as the USDA has estimated. Cash hogs as of this writing were trading with top bids between $55.00 and $59.75. The equivalent in the lean hogs would be $74.32 and $80.74.
The flip side of the coin is that farmers are more concerned with getting crops in the ground than marketing their hogs and may be holding back for the time being, creating somewhat of a mutant marketing hole. Not necessarily a bad idea if you believe all the press about increased exports and the price of pork going up. However this would mean that we will see an increase in marketings in the next few weeks which will likely put pressure on the June lean hogs.
RECOMMENDATIONS--I just missed taking a long position by 20 points last week. I am still recommending taking long positions in the June hogs on price brooks. However for reasons described above I am going to be a little more cautious. I am currently suggesting going long from in the low $83.50 area. Use a tight stop under the $82.70 level.
You may wish to use a June $83.00 lean hog put option for protection instead of a stop.
Les Jones
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