Sort & Cull

Bullish party planners in last month's hog market seemed long on talk but seriously short on beer money. Not only did summer premiums on the board stop growing the more we edged toward Memorial Day, they actually began to implode.

For example, on the first trading day of May, the July lean contract closed at 83.12, as much as $12 above the cash index. Roughly three weeks later, midsummer futures had deflated to 79.37, leading the spot country trade by a mere half buck.

Neither late-spring supply nor demand fundamentals have been all that helpful. While weekly hog slaughter has stubbornly averaged above 2.15 million head, the pork carcass value has languished in a narrow range between $81 and $83.

Bullish market psychology can live on dreams and theories only so long. If it doesn't eventually find genuine fertilizer, even the greenest of early promise will simply die on the vine.

Just before the Memorial Day break, summer lean futures were dangerous close to becoming compost. But faster than Donald Trump could say "let's `make BLT season great again," July and August contracts exploded higher this week.

We've just eased into June with late-summer contracts rolling more than 400 points higher, breaking out the top of a confining price range in place since early March (i.e., basically 77 to 84). Don't take my word for the technical significance. The fact that lean hog open interest has surged more than 8,000 contracts in just two days suggests that more than a few are reading the same mail.

Whenever new contract highs are scored and the price trend turns red-hot, the predictive guesswork can get pretty crazy (and undependable). That said, if July is still holding above 85 when spot June expires (i.e., the 13th of this month), the weekly chart will suggest that a door has been opened to test resistance between 92 and 93 (i.e., roughly 50% retracement of the price break between July 2014 and November 2015).

So cancel that trip to Grandma's this summer. The party's back on -- at least for the moment.

(CZ)

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