COMMODITY INFORMATION SYSTEMS
TECHNICAL COMMENTS
Beginning The Transition!
HOGS: A small double top was completed this week that provides a near-term objective of 66.07. A gap was left this week from 69.40 to 69.67, leaving a potential “island top.” Utilizing the gap as a near-term measure provides an objective of 66.30. In the longer-term picture, the first leg down (a) lost 765 points. If the second leg (b) is equal, an objective of 64.25 would be indicated. If the second leg becomes a Fibonacci ratio of the first, an objective of 61.12 is possible. Stochastics gave a sell signal on the close of 8/5/97 and remain in a negative posture.
Based on the following fundamentals, cattle should gain on hogs in months ahead...
The hog market appears to be caught between responding to tight nearby supply and prospects of much larger numbers in months ahead. The chart illustrates the expected transition from tight to adequate supply...
Pork production fell below the previous year for eight consecutive quarters. However, producers finally responded to cheap corn and near-record profitability earlier this year. Pork production is expected to exceed year-ago levels for the first time in over two years during the current quarter.
In addition to expanding domestic production, Canada is forecast to export record hog numbers to the U.S. due to NAFTA's elimination of import duties. The chart illustrates prospective imports of live hogs from Canada...
Following adoption of NAFTA, Canada has sharply increased hog exports to the U.S. Imports from Canada are now equal to nearly ten days slaughter, or 3.5% of all hogs slaughtered in the U.S.
The compound effect of sharply expanding U.S. numbers and record large Canadian imports is expected to pressure hog futures well into the new year. Although record pork exports to Japan will buoy prices from time to time, we expect the surge in supply to overwhelm the market in coming months. We recommend selling December and February futures on rallies for an eventual decline toward the $63.00 level. We also recommend buying December cattle and selling December hogs for a potential move to $30.00 or more, premium cattle (live hog basis).
August 9, 1997Bill Gary
Commodity Information Systems, Inc.
1601 N.W. Expressway, Suite 1450, Oklahoma City, Oklahoma
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