Lately, lean hog prices have gone from hot roast -- to -- cold cuts. As I write, the market is hovering near its lowest level in five weeks.
The thing that really stokes the fire, though, is the fact that hogs' recent slide is the exact opposite of what the mainstream experts predicted for the meat back in late April. At the time, lean hog prices were orbiting the lunar regions of a 15-year high with a fundamental backdrop that overflowed with bullishness. Here, the following news items from the time match the beneficial data to the belief in higher hog prices to come:
- Increased demand: "Pork demand is recovering from the recession and an export drop-off last year stemming from the H1N1 virus outbreak. Meat buyers appear to be in a notably better mood than they were a year ago. At least for the moment, a sense of normality appears to be returning to the marketplace." (AP)
- Upbeat economic data: The National Restaurant Association performance index for February reached a 27-month high. "An improving outlook for the US restaurant industry adds to the bullish sentiment in livestock." (Pork Magazine)
- Supportive weather patterns: "Demand is increasing as warmer weather in the US encourages consumers to grill outside." (Bloomberg)
- Reduced supplies: "Hog supplies have tightened after two years of losses forced farmers to slash breeding herds to the smallest size ever." (Bloomberg)
Yet -- despite having every fundamental reason under the sun to rally, hog prices reversed down.
On the other side of the street -- i.e. the avenue of Elliott wave analysis -- the recent downturn in hogs was quite foreseeable. Here, EWI's chief commodity analyst and Futures Junctures Service editor Jeffrey Kennedy steps in where the usual suspects fall short.
In the April 2010 Monthly Futures Junctures" Featured Market" segment, Jeffrey presented multiple charts supporting the bearish case for hogs and wrote:
"Lean hog prices are far along within the progression of a five-wave advance that began in August 2009 and are currently trading in a [major] reversal zone" that has consistently initiated downturns over the past three decades.
"With such persistent tendency, I believe odds strongly favor that a significant decline in this market is in the making. Moreover, wave patterns support this outlook."
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