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The market remains in a steep uptrend and is technically overbought and holding a stiff premium of futures over the cash market. This leaves futures vulnerable to corrections on the downside and traders see a seasonal tendency for the market to see cash weakness into Mid-December. The weakness in the cash at this time of the year is normally seen as production levels have a tendency to peak for the year in late November or early December. This year, however, the shift in production from the third quarter of the year to the 4th quarter of 2009 is the smallest increase since 1996. This may help explain the lack of seasonal pressure this year. The move to the highest level since June and lower close on Friday is a warning flag of a potential near-term top. Ideally, traders can wait for a correction to get long as the shift to a lower production base into early next year would suggests a stronger than normal seasonal “up” in prices from mid-December to mid-February. February hogs pushed moderately lower on the session yesterday as traders see the market as overbought and overdone for now. Cash hogs were steady to $1.00 higher yesterday and are called higher today. However, traders see some weakness developing this week. In addition, traders see weakness ahead for the pork product market which may help pull some of the hefty premium of futures to cash away from the market. China has finally lifted the ban on pork products from the US, Canada and Mexico which was put on earlier this year due to the H1N1 virus. Traders do not expect any surge in import demand from China who has cut-back on imports as the domestic pork supply recovered. For the first 10 months of this year, China has apparently imported just 110,000 tonnes of pork as compared with 373,000 tonnes for all of 2008. The Commitments-of-Traders reports for the week ending November 24th showed a significant buying trend from the funds. Trend-following fund traders increased their net long position by 6,484 contracts to 7,749. Index funds were light sellers of 423 contracts. In the newer disaggregated report, Managed Money traders increased their net long position by 4,674 contracts to 34,868. The buying trend from fund traders is a positive short-term force and suggests increased buying if resistance levels are violated. The CME Lean Hog Index as of November 25th came in at 55.93, up 94 cents from the previous session and up from 54.25 the week before. The estimated hog slaughter came in at 431,000 head yesterday. This is up from 426,000 last week but down from 433,000 a year ago as this time. Pork cut out values, released after the close yesterday, came in at $61.83, down 4 cents from Friday but up from $58.21 the previous week.
TODAY’S GUIDANCE: New buyers might wait for a more significant set-back in prices to buy. Key chart support for February hogs is back at 65.35 and 64.55 with 67.65 and 68.07 as resistance. Use 70.77 as a longer-term upside target.
