Bears going "Hog Wild"!
Fundamentals
Rallies in Lean Hog futures continue to be few and far between (despite yesterday's short-covering rally), as low export demand combined with higher than expected production have weighed on prices. China, who was a major buyer of Pork in 2008, is expected to cut-back on its purchases this year, as its domestic hog inventory is expected to climb by over 6% from year ago levels. The strength in the U.S. Dollar is also hurting U.S. exports, as buyers look to other producers such as Brazil or the European Union for their needs. Meat packers have been hesitant to bid-up Hog prices, as weak demand has allowed current slaughter rates to more than meet demand. Current low prices may force producers to continue to cut production, as many are now unprofitable given current cash prices. Any cut in production may, in turn, be a catalyst for higher prices later in the year, as lower supplies combined with the potential for increased demand -- especially once the effects of any economic stimulus package move through the consumer level -- could break the market's current slump. However, until cash market prices improve or at least begin to stabilize, it may take some convincing for speculators to go "Hog Wild" and attempt to finally forge a bottom in this market.
Technicals
Looking at the daily chart for April Hogs, we notice prices continuing to bounce off the recent lows near 60.00. It appears that yesterday's rally may be a sign that traders have found some value below $60 and we might be moving towards more sideways trading action. The 14-day RSI has just moved out of oversold territory with a current reading of 42.12. There is also a bit of a bullish convergence forming in the RSI, which may have been confirmed with yesterday's rally. However, until we see a daily close above resistance at the recent highs of 63.25, it is too early to say a near-term bottom is in place. Support remains at the contract lows of 59.80.
Mike Zarembski, Senior Commodity Analyst
