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Futures Market Commentary for March 4th 2013options Xpress - Monday, March 4th, 2013

Preserve your cash in a volatile market.

Today's Spotlight Market

Lean Hog futures may have finally reached oversold levels, after a relentless sell-off during the past few weeks. It appears that long liquidation selling is starting to wane and that commercial traders are beginning to lighten-up on their short hedges as cash prices hover near $80 per hundredweight. A rebound in Live Cattle prices also may be spilling over into the Hog market, especially if supermarkets use lower wholesale prices to feature specials on pork, which could spur increased demand from packers to help meet potential increased retail demand.

Fundamentals

Bears have been licking their chops over the performance of Lean Hog futures this year, with the current front month April futures down over $10 per hundredweight, as higher Hog weights and export concerns have weighed on prices. In December of last year, Russia announced it would ban the imports of U.S. beef, pork, and poultry due to enforcing a zero-tolerance policy on the use of Ractopamine in livestock. Ractopamine is a drug used as a feed additive to help promote leaner muscle mass in feed animals. Though it is approved for use in the U.S and in many other nations, it is restricted by the E.U, and now Russia is also enforcing its ban. Should other nations join Russia in banning pork produced with Ractopamine, it could be very detrimental to U.S. Hog exports, which account for nearly ¼ of U.S. production. Market-ready Hog weights have been running well above average lately, which is adding to pork supplies and allowing some meat packers to purchase fewer Hogs to meet demand. A recent up-tick in wholesale pork prices may be a sign of improving consumer demand. If true, we could see increased packer purchases of cash hogs in the coming weeks, as profit margins have become positive due to the sharply lower cash Hog prices.

Technical Notes

Looking at the daily chart for April Lean Hogs, we notice prices trading at lows not seen since May of 2012, as a "perfect storm" of weak exports and high Hog weights produced large supplies. The 14-day RSI is well into oversold territory, with a current reading of 26.93. The May 2012 low of 79.475 looks to be the next major support level for the April contract, with resistance not found until the 20-day moving average, currently near the 84.775 price area.


Mike Zarembski, Senior Commodity Analyst

Support / Resistance & Oscillators
  S2 S1 Pivot R1 R2
Apr Lean Hogs Pivot 80.550 80.850 81.300 81.600 82.050
Apr Lean Hogs Chart   79.475   84.775  

Today's Highlights and Economic Data
Economic Reports 11:00 AM ET: Export Inspections
FND / LTD None

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