On Friday Allendale noted there were some interesting developments, which were helping in turning this market from a sell into a sideways trade. We noted how the Commitment of Traders is now showing Index Funds and Commodity Funds are no longer selling in tandem. On the US dollar front the idea is the rising US dollar, which was up sharply again Monday, would further hinder pork exports. For the last few weeks the daily ups in the US dollar meant lower trade in lean hog futures. We can note lean hog futures have not been following the dollar for a few days now. We are now treating hogs as a sideways market from $56 to $59 on the December contract. Monday afternoon USDA indicated wholesale pork was down 91 cents. That could pressure the trade on Tuesday.
For price direction perhaps this market is ready to start to listen to reason. Though pork exports have fallen sharply we see no reason to think the economic problem is hurting domestic pork demand. We are now suggesting futures may trade sideways. For hedgers we are out of the hedges covering nearby marketing's, but are still holding moderate hedges for spring and summer 2009 sales. For speculative trading we will lightly buy dip's as the trend is sideways. Allendale's next projected major turn day for lean hogs is
October 31.
For a speculative trade try Buying 1 Dec 5705, risk 5590, objective 5925. If you have been following our earlier recommendation we Sold 1 December $72 call at $2.20. Settled at $0.10 on Monday.
We have a rising dollar, which the trade perceives as hurting exports of chicken, pork, and beef. Last week we noted Sanderson Foods, one of the top chicken producers, noted their exports were falling due to credit issues. In order to secure purchases foreign buyers must have their banks draft a letter of credit. It is simply a document saying the company's money is good and their money will be cleared. However, it seems some domestic banks are not accepting letters of credit from foreign banks. So, we have the US dollar rising and problems with credit being frozen. On the other hand we have to clearly state freight rates have dropped like a rock. We have not computed it out on a per tonne basis, but would assume dropping freight rates has taken much of the sting out of the rising US dollar. If chicken, pork, and beef all have worse than expected problems with exports then it could keep the product in the US and further lower prices on these products.
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