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(September 25, 1997) HOGS: The pork complex spent the past week still fixed in the sideways it has been trading in for the last month. The market found early weakness from the fact that packer bids were lower to start the week due to mammoth hog runs, but as the week moved on them were strong sips that runs will not be sufficient to meet expected slaughter rates prompting higher cash bids by mid-week. The cash hogs tops should end the week $1.00 to $3.00 lower than a week ago with cash tops at $47.00 to $50.00. The dressed pork market continued its spiral down due to heavier supplies, but demand seems to be picking up and the big break just may be buying new demand. Overall, market internals appear to be mixed, but if the hog run does indeed fade it could set up a very powerful situation especially heading into a Quarterly Hog and Pig report. Early hog and pig estimates appear burdensome, but just remember that the estimates for the last report also showed expectations for a large industry expansion which did not show up. The one thing that has developed during the latter part of the week is that hog runs seem to be dropping a bit and if this scenario starts to become reality the whole industry could be in for higher prices. As it stands now the hog supply could be a little lower than the USDA estimated on their last release and a drop any further could spark very bullish implications for the next few months. Technically, October lean hogs are in a downtrend; the trend would turn back up on a close above $71.80.
FUTURES STRATEGY–Long LHV at $70.30. Maintain a protective sell stop at $68.05 on a close only basis.
OPTIONS STRATEGY–Short LHV $70.00 puts at $1.00. Maintain a protective buy stop at $2.15.
Tony Montini
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