Lean Hogs: Technical Analysis – Chinese companies turn to pig breeding

By IFCMarkets

Chinese companies turn to pig breeding

Chinese Beijing Dabeinong Technology and Liaoning Wellhope will invest 1 bn yuans ($146 mln.) in the project of pig feeds production. Will lean hog prices retreat?

National Statistics Bureau of China reported on Friday that national lean hog production fell 3.4% in 2016 compared to the previous year having reached the lowest since 2011 at 53mln tonnes. National production fell on higher rivalry from cheap imported pork. The demand from China has become one of the factors for global prices to surge 65% in recent 3 months. As we see, such advance in prices has pushed Chinese companies towards lean hog production ramp-up. In theory, this may push global prices lower. China consumes around 46% of global pork production. At the same time, it is self-sufficient with pork. China imports around 2.5% of its internal lean hog production or 1-1.3mln tonnes a year.

On the daily chart LHOG: D1 is correcting after its surge. Lean hog prices have reached the support of the rising trend and the 200-day moving average. Further decline is possible in case of lower global demand.

• The Parabolic indicator gives bearish signal.
• The Bollinger bands have narrowed which means lower volatility.
• The RSI is above 50 having formed negative divergence.
• The MACD is giving bearish signals.

The bearish momentum may develop in case LHOG falls below the last fractal low, the 200-day moving average and the support of the rising trend at 65.3. This level may serve the point of entry. The initial stop-loss may be placed above the 6-mopnth high, the Parabolic signal and the last fractal high at 68.7. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 68.7 without reaching the order at 65.3, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Summary of technical analysis

Market Analysis provided by IFCMarkets