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HOGS
ALLENDALE, INC. COMMODITY
REVIEW AND OUTLOOK
COMMODITY INSIGHT ING
DERIVATIVES CLEARING
GLOBAL ASSET MANAGEMENT
4506 Prime Parkway, McHenry, Illinois
(June 27, 1997) HOGS: Hogs started out stronger today as cash firmed up ahead of the open. Futures stayed firm all day waiting for the report. The report is called bullish to futures as the expected expansion is not happening according to USDA. Futures are set to break out to the upside Monday, however, the Crop Production report could change the picture. Hold shorts for now as the trade rolls longs into other months and resistance has held for the week.
Rian Powell
195 Route 6A, Suite 6, Orleans, Massachusetts
(July 2, 1997) HOGS: While seasonals support the idea of lower prices for hogs for the near term, the USDA report showing only minimal expansion, marketings that remain tight and the potential for Japanese buying all suggest that hogs are more of a buy than a sale. If retail demand weakens, it will be negative.
RECOMMENDATION–August hogs have experienced a bit of profit taking, but I suspect that they are a buy on breaks. Buy August hogs on breaks of 50-100 points or in the mid-low 8000's with stops of 100 points or under 7850. Objective is open, but a test of the highs is very possible. Longer-term traders should continue to concentrate on October hogs as a buying opportunity of 50-100 point dips or in the mid-low 7200's. Use stops under 7070 or of 100 points. Objective is open. Option traders should concentrate on October calls as one of the best potential trades for an option trader.
M. Steven Morgan
152 Ennis Lake Road, Ennis, Montana
(June 29, 1997) HOGS: The long awaited Pig Crop report from the USDA was released on Friday and it was a bullish surprise. The report suggested that there is very little expansion taking place in the pork industry. As a result, distant hog futures are called limit up while the nearby contracts are called 50 to 100 points higher.
Now that the Pig Crop report is bullish, the only thing lacking to send pork values significantly higher is for Japan to step-up and purchase U.S. pork products. If Japan does indeed turn buyer in the coming days, hogs and bellies will rise and more than likely touch or exceed the spring highs, and that would be a heck of a rally.
My upside target for summer hogs has been 90 cents and for summer bellies it has been $1.00. Friday's Pig Crop report simply makes me even more bullish than before. Continue to view all hard breaks in summer hogs and bellies as an opportunity to probe the long side of the market. The oinkers are going higher!
For the next five days, buy (2) December hogs and sell (2) April '98 hogs at a spread of 500 points. On Friday, that spread closed at a difference of 457 points. In essence, I am willing to give up 45 points to put that spread on. And if the spread narrows to 325, buy (2) more December and sell (2) more April '98 hogs.
Also, sell (1) August feeder at 81.50 and (1) more at 82.50. I continue to believe that the front end of the cattle market for both feeders and fats can be sold on stiff rallies. That is the same trading strategy as I have been suggesting for the past several months, and it has been working wonderfully.
Pork prices must rise over the next six months in order to meet the new demand about to come from Japan. Buy all hard breaks in hog and bellies as well as distant month cattle. Notice I said, “distant month cattle.”
Jerry F. Welch
209 South LaSalle, Chicago, Illinois
(July 3, 1997) HOGS: The Pig Crop report was bullish the deferred months as the discounts there were too steep considering the less than expected expansion going on. Cheaper corn; high live prices; Japan etc. was with us for a couple months and no one really expanded? However, once the back months adjusted, the front months were forced to deal with the question again of the Japanese. The tariffs were reduced July 1st, but that didn't mean they'll automatically be in for supplies. Their May imports of pork for example were down 65% we believe from last year. Why? In part ample storage supplies; in part reduced demand domestically (they also had a lot of meat scares there). The U.S. may not have the numbers (by the way, the bulls are more bullish: Japan plus even cheaper corn=fall expansion and therefore even less number's and ever higher prices. We're suspicious but we'd rather buy the October anyway as more “safe” than the July or August. Buy rallies there and you must get Japan import buying to support you. Our domestic demand will not. Aside.
John W. Kleist
Sagamore Partners, Inc.
575 W Madison, Ste 2607, Chicago, Illinois
(July 02, 1997) HOGS: The pork complex spent the past week in a very volatile state as a bullish Hogs and Pigs report sparked a strong one-day rally, but after the gains the complex went into a tailspin. The cash hog market will end the up $2.00 to $4.00 higher versus a week ago with cash tops at $60.00 to $62.00. The spurt in the cash market was also related to hog and pig report as the packers scrambled to get enough supply to get them through the week. After the packers covered themselves they pulled their bids as they decided to cut the slaughter rate due to the holiday. The next week will be key as far as the market is concerned, because if the hog runs do not pick up it could spell higher prices in the near future. Overall, market internals are turning a bit to the better as the numbers on the hogs and pigs report indicate that the hog supply will not increase as the market had expected. If these numbers are true, which many think they are not, it could mean much higher prices for the hog market as long as demand does not deteriorate even further. Technically, August live are in an uptrend; the trend would turn back down on a close below $80.15.
FUTURES STRATEGY--Sell LHQ at $81.20. If filled enter a protective buy stop close only at $83.25.
OPTIONS STRATEGY--Short LHO $54.00 call at $.90. Maintain a protective buy stop at $2.10.
Tony Montini
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