CME Futures Traders Eye 90-Cent Hogs After Bullish USDA Report

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Chicago futures traders have their sights set on 90-cent hogs as a sharp rally triggered by unexpectedly low inventory data continued a second day.

Lean hog futures for June delivery rose 2.025 cents to 83.05 cents a pound today, after yesterday jumping 3 cents, the maximum daily move allowed by CME Group. The June contract is up 6.7 percent from a five-week low of 77.8 cents reached March 26.

The U.S. Department of Agriculture’s Quarterly Hogs and Pigs report, released March 26, provided ammunition for market bulls, listing breeding inventories at a record low. Prices may keep climbing in coming months, traders said, possibly to 90 cents a pound, a level last touched by front-month futures in August 2008.

“The report justifies higher prices,” said Jim Burns, an independent hog futures trader at CME. “You could easily see 90 cents in some of the summer months.”

As of March 1, the U.S. hog breeding herd totaled 5.76 million head, down 3.9 percent from the same date a year earlier, according to the USDA report. The March 1 breeding herd was the lowest since at least 1988, when the USDA began tracking the data on a quarterly basis.

Analysts expected the breeding herd to decline about 2.7 percent. Breeding inventories are an indicator of pork supplies in six to 18 months.

The USDA report underscored a widespread herd contraction phase that’s now in its third year, signaling higher pork prices as domestic and foreign buyers compete for shrinking supplies.

Nationwide inventories of all hogs as of March 1 totaled 63.99 million head, down 2.8 percent from a year earlier and the lowest quarterly total since June 1, 2007, according to USDA.

The USDA report appeared to settle the debate over whether the U.S. pork industry had contracted sufficiently following last year’s price slump, Burns said.

“Before the report, the question was, whether we’d liquidated enough sows,” Burns said. “It looks like we’ve liquidated enough sows.”

Bullish USDA data indicates a hog futures rally that began late last summer has further upside, chart analysts said.

The closest-to-expiration futures price has almost doubled since tumbling in August to 43.575 cents a pound, the lowest in nearly seven years. CME futures reflect carcass prices.

This week’s futures gains have “quickly repaired much of last week's serious chart damage,” said Jim Wyckoff, president of JimWyckoff.com, a market analysis Web site. The gains “puts back in place a two-month-old uptrend line drawn from the February and March lows,” he said.

The next upside objective for hog market bulls is a close above June’s contract high of 83.5 cents, Wyckoff said today (June recorded a high today of 83.375 cents).
A close above 83.5 cents “opens the door” for a move to 85 cents, he said.

Wyckoff said he “can’t rule out” a rally to 90 cents. “Bulls got very strong again this week.”

Bearish traders would regain some downside momentum if June futures closed below “solid” technical support at 80 cents, said Wyckoff, who bases his projections on trend lines, historical highs and lows and other technical systems.

Source: Bruce Blythe, Vance Publishing



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