Weekly Purcell Report

by 5m Editor
9 June 2004, at 12:00am

US - Agricultural US Commodity Market Report by Wayne D. Purcell, Agricultural and Applied Economics, Virginia Tech.

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The price picture is radically different in hogs depending on whether you are looking at the summer months or the late fall months of this year. The December lean hog contract is trading around $58.50 in Tuesday's session, and the June is showing prices around $78.50 with the July trading around $76.

This is partly seasonal strength since we normally expect higher prices in the summer months, but I think a substantial part of the high price patterns is also coming from the boost in demand that pork is getting while the trade channels for beef continue to be closed to important countries like Japan.

The price discovery I see at the Chicago Mercantile Exchange is suggesting that the boost in demand will likely come to an end before the end of the year, so we have the December futures trading $20 per hundredweight below the summer contracts. I would have been short hedging these summer contracts already and that has opened up the specter of margin calls.

This July, as it tries to continue to make new contract highs, lends itself to the possibility of an uptrend line that hooks the low at $68.90 on April 19 with the more recent low of $72.45 that occurred on May 26. This market either has to continue to make new highs across the next few weeks or give us a sell signal on a close below that trend line.

I expect the latter to occur since I see signs of an end to these bull markets in both the cattle and hog complex as I look at recent price action on the charts.

5m Editor