June Hogs experienced a key reversal on Friday, which suggests a short-term low may be in place. With stochastics readings at 18.4 and 19.2, the market is extremely oversold. A key momentum indicator, the Relative Strength Index (RSI) is suggesting a bottom is close at hand. When the market posted a new contract low on March 23, RSI was at 14.6; when it posted another new low on April 6, RSI was at 25.3; and when it posted another one on Friday, RSI was at 32.8. The triple divergence indicates a loss in downside momentum.
Source: USDA
There is a seasonal tendency for pork prices to increase during the spring, but so far this year, values have only stabilized. This could mean that there is plenty of upside potential ahead.
Source: CME
The CME Lean Hog Index has continued to drift lower this month, but a chart of the five-year average shows a seasonal tendency for the Index to move higher from mid-April through mid-June.
Source: USDA
Source: CFTC
The US hog inventory as of March 1 was well off the highs of a few years ago, and it was only slightly higher than last year. If pork exports hold steady or at least are not down significantly from last year, the hog market may see higher trade over the near term. In the April USDA supply/demand update, US pork exports for 2022 were revised higher from the March report, and 2023 exports were forecast to be higher than 2022.
The recent Commitments of Traders report showed record net short positions in hogs for several speculator categories. This suggests that any minor improvement in the hog market fundamentals could spark increased buying once resistance levels are violated.
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Originally Published April 21, 2023
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