New World Screwworm Cases Could Create a Buying Opportunity in Hogs

August lean hog (HEQ26) futures present a buying opportunity on more price strength.

See on the daily bar chart for August lean hog futures that prices have been beaten down pretty hard over the past few weeks. My bias is that the market has been overdone on the downside and has put in a near-term bottom. See at the bottom of the chart that the Relative Strength Index this week reached oversold levels that have coincided with near-term market bottoms being put in place over the past several months. Seasonality studies also now presently favor the lean hog futures market bulls.

Fundamentally, the historically elevated beef prices at the meat counter are likely to drive more substitution demand for more economical pork cuts, especially with gasoline prices well above $4.00 a gallon a the pumps. Furthermore, it would not be surprising to see the New World screwworm situation in the cattle markets at present negatively impact consumer psychology toward beef and possibly dent demand for beef.

A move in August hogs above chart resistance at $100.00 would give the bulls more strength and it would also become a buying opportunity. The upside price objective would be $109.00, or above. Technical support, for which to place a protective sell stop below, is located at this week’s low of $96.175. 

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any trades and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission (CFTC) has said about futures trading (and I agree 100%): 

Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.