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COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6,
Orleans, Massachusetts
(June 11, 1997) LEAN HOGS: Firm cash markets have provided support this week, but carryover selling from the bellies has also been a feature. Hog marketings have remained light. However, if supplies come in greater than anticipated or the cash markets soften, the hogs could still experience a harder break than expected previously, and new lows may be in store. Japan has yet to come in as a good buyer of hogs, and some analysts expect them to remain absent until the fall. Their tariff will be removed July 1, so the market may attempt a rally into that time frame. Some traders expect the Pig Crop report due out near the end of the month to show an increase of about 6% more hogs, so if you're long the back month hogs, watch for increased pressure. However, on one hand, this is not a new perspective (compare the prices of October to July), and on the other, as I've pointed out, there isn't that much incentive for larger producers to expand when it means more headaches in the form of complying with EPA regs and negative public outcry, vs. making more money per animal if supplies are kept tight. If you think storage and expansion issues aren't at play in the marketplace, you haven't seen copper, oil, gas, coffee, etc. Storage or expansion for future demand has lost favor in many quarters.
RECOMMENDATION--Conservative traders should stand aside or trade options. August hogs broke to a test of support near 7810. Further support lies near the 7730 low. If 7730 is taken out, 7550 begins to appear attainable. Aggressive traders should buy August hogs on dips to low 7800's-7785 with stops under 7730 or of 50-100 points, and/or sell August hogs on rallies to 7990-8020 with same stops or over 8040 or 8115. Use stops due to potential for Japanese purchases. Expect resistance near 8040, 8100-8115, and 8190. Option traders should continue to buy August or October calls at current levels.
M. Steven Morgan
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