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COMMODITY REVIEW AND OUTLOOK
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(August 20, 1997) HOGS: The market traded higher due to the market being perceived as oversold and because it had held support after the recent hard break. However, just to spice up what might have been a routine day, rumors of Russian buying of pork circulated. By the close, the market had discounted the rumor and sold off its highs. Cash markets remain soft. Talk remains that the Japanese consider U.S. pork to be too expensive, and that they had been buying from Europe instead. Part of the concerns motivating the market now have to do with the fact that pork prices were unable to move higher even though pork supplies were perceived as tight. Now, at a period when many traders expect increased hog numbers to come to market, the perception is that perhaps pork prices are too high. October remains at a discount to the cash market, which may provide support on this break. I suspect that regardless of how negative attitudes might be now, hogs are a buy on this break as most of this has been talked about for some time now.
RECOMMENDATION–October hogs held support and managed to rally a bit. Support is seen near 6950. Further support lies near 6935, 6850, near 6800 and 6782-6745. Resistance lies near 7040, 7075-7065, 7165, 7300, 7345-7350, 7392, 7575-7600, and 7635- 7660. Aggressive traders might buy October hogs in the 6980-6950 area and/or sell them on a test of 7070 or so. More conservative traders should hold onto longs with the idea of looking for a selling opportunity in the mid 7100's. Longer-term traders might buy calls on this break. December and October calls are relatively cheap, and could offer good potential upside if the Japanese buy.
M. Steven Morgan
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