A growing supply of poultry in the U.S. is creating difficulties for producers and traders of “the other white meat”, as a Russian ban of poultry exports from the U.S. has created serious pricing issues for pork. Since January 1st, U.S poultry exports to Russia have been banned due to the use of chlorine as a disinfectant in U.S. poultry processing plants. The ban has been a big blow to U.S. poultry producers, as Russia was the largest export market for U.S. poultry, accounting for just over 20% of Russian consumption. This has caused additional poultry supplies to hit the U.S. market, allowing retailers to lower prices, making pork less competitive price-wise for the average consumer. The weakness in Pork demand comes despite lower supplies of Hogs coming to market, due to inclement weather conditions in parts of the Midwest. U.S. Pork production is down almost 3.5% from last year and shows little signs of improving unless demand starts to pick-up. Summer-month Hogs are trading at a large premium to the 2-day CME Lean Hog index, currently at 67.35, which may spark speculative spreading vs. the lead month April futures, which is trading at a very small premium to the cash index. Although Lean Hog futures prices have rallied off the recent lows seen earlier this month, any rally attempts could be short-lived, unless negotiations with Russian officials can resolve the poultry export ban that has the pork industry crying “fowl”!
Given the large premium June Lean Hogs are trading vs. the Lean Hog Cash index and no clear signs that the Russian poultry ban will be removed any time soon, some traders may wish to investigate buying puts in June Lean Hog futures options. With June Lean Hogs trading at 78.150 as of this writing, one can purchase a June 76 put for about 3.000, or $1,200 per option, not including commissions. The premium paid would be the maximum risk on the trade, with the trade being profitable if June Lean Hogs are trading below 73.000 at expiration in June.
Looking at the daily chart for April Lean Hogs, we notice prices attempted to test the 20-day moving average on Tuesday, but were met with a good amount of selling. The latest price recovery off the recent lows made on February 1st came on declining volume, which may signal that buying of late was nothing more than a short-covering rally. The 14-day RSI is neutral, with a current reading of 46.53. Support for April Lean Hogs is seen at the February 1st lows of 65.675, with resistance found at last week’s highs near the 69.600 level.
Mike Zarembski, Senior Commodity Analyst
Posts
0 comments:
Post a Comment