Price action: After recently dipping and testing support, hog futures reversed sharply to the upside Tuesday. The expiring July contract surged $2.475 to $101.275, while most-active August leapt $3.40 to $97.575.
Fundamental analysis: Renewed wholesale strength seemed to trigger a fresh surge in hog futures, with today’s big gains projecting sustained cash market strength over the short run. The hog index hasn’t particularly pointed in that direction as the latest gains have fallen short of those seen in the days following July 4. The CME confirmed last Friday’s preliminary figure at $98.15, up 72 cents, while Monday’s preliminary calculation puts it another 51 cents higher at $98.66. The July futures’ close implies sustained strength into the contract’s expiration July 17 (10th business day of the month). Despite the August contract’s upward leap, it’s still priced about $3.50 under July and about $1.00 below the index.
Again, today’s midsession pork quote likely sparked today’s futures strength, with a $16.96 jump in pork belly values leading across-the-board gains; that pushed pork cutout $4.25 higher to $112.20. The noon quote represents its highest level since last August, although it’s far below last year’s top at $131.02. Still, we can probably expect sustained pork strength over the next week or two, since daily and weekly slaughter totals will likely be some of the lowest of the year. Conversely, given the elevated nature of wholesale beef prices, as well as the seeming grocery-industry shift toward pork features, we think consumer demand will hold up relatively well in the short term.
Technical analysis: Today’s action reinforced the bullish short-term advantage in August hog futures, especially with the settlement marking a fresh summer high close for the contract. Look for initial support around the close of $97.45 posted last Wednesday. Also expect strong backing around today’s low of $94.35 since that coincided with the contract’s 10-day moving average near that same level, as well as trendline support drawn across the contract’s June and July lows, now near $94.05. A drop below that area would have bears targeting the $90.00 area. Initial resistance stems from the July 5 high of $98.475, at the psychological $100.00 level, then the July 6 high at $100.75. A breakout above the latter point would open the door to a test of the $105.00 level.
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