Lean Hogs
If it ain’t broke don’t fix it. The large spec position have been a valuable tool in picking tops and bottoms for price movement. Good enough to be worth revisiting. Below is the price chart of October lean hogs, marking the large spec peak net long in the 4/23 COT report and their peak net short was in the July 9 report. Pretty spiffy.
Large specs resumed short covering in the week ended Tuesday as net buyers of 6,542 contracts. This is the fifth consecutive week of short covering, having reduced their net short position by 32,942 contracts since the July 9 COT release. October futures were nearly $12 off their July 9 low as of the close Friday afternoon. Looking at the COT chart immediately below, it looks almost too positive with specs having so far to go to get back to their recent sizable net long of 60,181 contracts. So while the trend is your friend and the trend is up in price and the large spec trend is to buy buy buy, we want to make the point of saying lets not get TOO wrapped up in this, there is nothing saying they need to keep buying.
Fundamentally we do not feel there is much upside from these prices, this discussed in length last week on page 3, and again in this week’s commodity page. Fundamentals and price action late last week prompted us to establish very limited hedge protection and following this report has prevented us from taking larger protective measures. Much like we said for cotton, rice and other commodities this week, the question is always: reward the rally or hope for higher? Usually the answer is a bit of both.
Soybean Meal
Large specs were net buyers of 3,662 contracts of soybean meal in the week ended Tuesday, but late week price action was poor with an outside day down Friday, although the close Friday was well off the low and above lows from the prior week. Commercials were also net buyers, of 654 contracts, while index funds were sizable sellers of 3,888 contracts. Both specs and commercials are in no-man’s-land and on their own don’t provide us a strong sense of direction at the moment.
The technical picture is mixed as well. This market looks rangebound between 300 and 330 in the December and January contracts. We hold a modest long futures for meal buyers and have reason to be cautious if price action is negative to start the week. If you are not on board with us, look to get there if prices retreat near the 300-305 area, or if the 330 ceiling gets shattered.
