Catching a falling knife

Lean Hogs for March 7, 2013

Catching a falling knife can sometimes be painful and though a bit early on my recommendation to buy pork…it appears the move I anticipated is under way. As of this post April lean hog futures are higher by 3.53% on the day trading above their 9 day MA for the first time since early February. The 20 day MA is the darker blue line and will serve as our next over head hurdle. My suggestion is to use the Fibonacci levels as your objectives on bullish trade. On the April contract I see this leg lifting prices back near 85 cents.
A confirmed decline in production in Q1 could be sizable and a potential market mover. Your next cold storage report is Friday 3/22. The Cold Storage survey measures reserve food supplies held in commercial and public warehouses. The survey asks for inventories as of the last calendar day of the month for agricultural products, such as butter, American cheese and other natural cheeses, pork bellies and other pork products, controlled atmosphere apples, all vegetables, all fruits and berries, whole chickens and chicken parts, whole turkeys and turkey parts, and boneless beef. The industry uses the data to gauge current supplies of products available to consumers. For some commodities, the estimates are factored into public price discovery. Producers also use the data for business decisions. Economists and other analysts use the data to monitor the health of the industry and to compute the industry’s contribution to the agricultural sector.
As a trader when both the fundamentals and technicals support a move I will generally advise clients to take a larger position. Those late comers to the trade may opt to sell calls against long futures 1:1. The lean hog contract is a 40,000 lb. contract which means every 1 cent move represents a $400 gain/loss per futures contract.
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
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