Morning Futures Roundup
Bears Feast as Pork Prices Tumble
Hog producers are having a rough go of it lately, as record high feed costs and plunging pork prices have made Hog production an unprofitable proposition. The outcome of poor profit margins is a huge number of Hogs being sent to market as producers are reducing herd sizes or leaving the business entirely.
Lean Hog futures prices have plunged, with the October futures trading at or near contract lows which are nearly $18 per hundredweight lower than the highs seen early in 2012. Pork cut-out values are down over $5 per pound in a week's time as current demand is not keeping up with supplies. To make matter worse, Hog weights are above the average for this time of year adding to the supply surplus in the market.
Bargain hunting bulls will note the large discount of the October futures to the CME Lean Hog index, with the October futures currently trading at a $16 discount to the index. Any bounce in cash prices could spark a short covering rally in the futures although seasonal tendencies are for lower cash prices going into the fall.
Large speculators are still holding a net-long position in Lean Hog futures, with the most recent Commitment of Traders report showing large non-commercial traders net-long 29,550 contracts as of 8/21. Unless we start to see cash market prices begin to stabilize, large specs may begin to liquidate their long positions which would exert even more pressure on already depressed futures prices.
Looking at the daily chart for October Lean Hogs, we notice prices trying to find some support near 72.000. The 14-day RSI is holding just above oversold levels with a current reading of 31.11. Though the market looks to be oversold and a rally back towards resistance at the 20-day moving average (currently near 76.250) would not be a out of the question, it would take a rally back above the 200-day moving average (currently near 83.300) to turn around the bearish sentiment.
CLICK HERE FOR THE FULL-SIZED CHART
This article is provided for informational purposes only. No statementin this article should be construed as a recommendation to buy or sell asecurity or to provide investment advice. The content provided has beenobtained from sources deemed reliable but is not guaranteed as toaccuracy and completeness. optionsXpress makes every effort to providetimely information to its recipients but cannot guarantee specificdelivery times due to factors beyond our control.
Derivatives involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.
For investments using a straddle or strangle options strategy thepotential loss is unlimited. Multi-leg option strategies are subject tomultiple commissions. Profits may be eroded by the commission expendedto open and close the positions and other risks apply.
View Mike Zarembski's post archive >