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(September 24, 1997) HOGS: SHORT TERM–After scoring six month-lows, October hogs rallied to close higher on the day. Ideas that packers would become more aggressive was supportive, as is the idea that harvest will slow marketings of hogs. However, to moderate the action, Friday is the Pig Crop report, and I suspect no one wanted to be too committed on the short side, even though a bearish report is widely expected. Much of the buying was probably profit-taking and short-covering.
LONG TERM–Some traders believe that the next USDA report at the end of the week will reflect higher hog numbers. On one hand, I have my doubts, due to EPA regulations and public disfavor. I also have to ask myself, where's the incentive for the corporate owners of the hogs? If they increase slaughter facilities but not livestock numbers, they can control losses when the market is down and lay off workers if need be. Conversely, if supplies remain tight, they will make each animal worth more. However, taking the expansion point of view into account, I see that deferred hog prices are already down. April hogs are 6200 as compared to October 7000 or so. Since that's over 10% difference, it seems that perhaps expansion is already factored in.
RESISTANCE–Resistance basis October remains near 6995-7020 (current levels), 7070-7085, 7105, 7135, 7165, 7200-7220, 7300, 7322, 7345-7350, and 7392. Resistance basis December lies near 6670-6705, 6770, and near 6820.
SUPPORT–Support basis October lies near 6935, 6895, 6850, and 6800. Support for December is near 6555-6600 (current levels), 6530 and 6590.
RECOMMENDATION–Conservative traders should be considering whether or not they wish to be in the market for the report. If very aggressive, I would consider buying weakness after the report as much of it is factored in. Aggressive traders could buy October hogs on breaks to the mid-low 6900's with stops of 50-100 points or under 6875. Resistance as 7200 is approached may be fairly strong, so if the market can rally to that level, be alert for reversals or failures in that area. Longer-term traders might contemplate buying December hogs on pullbacks of 25-50 points. Option traders could consider December calls on dips.
M. Steven Morgan
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