Lean Hogs
The lean hog COT is the undefeated champion of technical indicators over the past few months, provided nearly perfect timing and direction for entering and exiting the hog market. Large speculators held their largest net long in late March, then retested that position on April 23, with October lean hogs peaking over $88 at the time. The following week they sold over 16,000 contracts, and continued to reduce their holding each of the next 9 weeks, a streak that ending June 9th with October at $68 on the 10th. 4 weeks of modest short covering followed, rallying prices $10. While prices remain largely in no-man’s-land, large specs do hold a significant, near record, net short position so our bias would be for higher prices if only looking at this. We held a modest short position, choosing to capture this rally, and as we said we would watch it closely. We exited Wednesday this week.
Soybean Meal
The soybean meal COT is challenging lean hogs for most useful trading tool running. Large speculators, after buying for several months, held their largest net long of the move in the May 28th data, at net long just under 75,000 contracts. They swiftly liquidated, reducing their position every week but two of the last 11, and now hold a net short of nearly 25,000 contracts.
Turning this into a useful indicator for the future rather than an explanation of the past, we simply need to observe their position change each week for any indication that they are done selling. Right now they appear happy to be both reducing longs and adding to shorts, so at this point we should expect additional pressure on prices. Any significant close under $300 and we will exit our modest long hedge position.
