Hogs: In Position to Trade Lower and Correct Overbought Condition
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February hogs closed sharply lower on the session Friday. The selling pushed the market down to the lowest level since December 21. Ideas that the strength in pork prices on Thursday was a temporary bounce plus continued talk of the overbought technical condition of the market, and the higher than normal weight data suggests that cash markets could struggle to hold onto recent gains. News that China's sow heard at the end of November was up 4.7% from year ago was also seen as a negative factor. The market may need to adjust to less import demand from China for the coming year, and to expanding production from other key world exporters. For all of 2021, February hogs managed to gain 17.7%. Technically, the market looks overbought short-term and vulnerable to a further long liquidation selling break. The December USDA hogs and pigs report carried a bullish tilt, but the market has struggled to add to the upside as the market may have already priced in a tighter supply.
With the USDA closed, there was no pork pricing released on Friday. There were no estimated hog slaughter or pork cutout reports on Friday because the USDA was closed. On Thursday the cutout came in at $85.64, up from $80.94 the previous week. The CME lean hog index as of December 28 was 72.20, up from 71.82 the previous session but down from 73.02 the previous week. Cumulative export sales for 2021 reached 1.887 million tonnes, down from 2.097 million a year ago but above the 5-year average of 1.579 million. Outstanding sales for 2022 have reached 90,100 tonnes versus 148,800 a year ago.
MARKET IDEAS
February hog resistance is at 82.20, with key support back at 80.00 and then 78.90. April hog resistance is at 87.37, with 85.65 and 84.75 as support.
