Chicago futures traders have their sights set on 90-cent hogs (carcass weight basis) as a sharp rally triggered by unexpectedly low inventory data continued for a second day.

Lean-hog futures for June delivery rose 2.025 cents to 83.05 cents a pound today, after jumping 3 cents yesterday, the maximum daily move allowed by CME Group. The June contract is up 6.7 percent from a five-week low of 77.8 cents reached on March 26.

USDA’s Quarterly Hogs & Pigs Rport, released on March 26, provided ammunition for market bulls. The report listed breeding inventories at a record low. According to traders, prices may keep climbing in the months ahead, possibly to 90 cents a pound, a level last touched by front-month futures in August 2008.

  “The report justifies higher prices,” said Jim Burns, an independent hog futures trader at CME. “You could easily see 90 cents in some of the summer months.”

As of March 1, the U.S. swine breeding herd totaled 5.76 million head, down 3.9 percent from the same date a year earlier. This puts the breeding herd at its lowest level since at least 1988, when USDA began tracking quarterly data on U.S. hog and pig inventories..

Analysts expected the breeding herd to decline about 2.7 percent. Breeding inventories are an indicator of pork supplies in six to 18 months.

USDA’s March report underscored a widespread herd contraction phase that’s now in its third year, signaling higher pork prices as domestic and foreign buyers compete for shrinking supplies.

Nationwide inventories of all hogs on March 1 totaled 63.99 million head, down 2.8 percent from a year earlier and the lowest quarterly total since June 1, 2007, according to USDA.

The March pig crop report appeared to settle the debate over whether the U.S. pork industry had contracted sufficiently following last year’s price slump, Burns said.

“Before the report, the question was, whether we’d liquidated enough sows,” he said. “It looks like we’ve liquidated enough sows.”

Bullish USDA data indicates a hog futures rally that began late last summer has further upside, chart analysts said.

The closest-to-expiration futures price has almost doubled since tumbling in August to 43.575 cents a pound (carcass weight), the lowest in nearly seven years.

This week’s futures gains have “quickly repaired much of last week's serious chart damage,” said Jim Wyckoff, president of JimWyckoff.com, a market analysis Web site. The gains “put back in place a two-month-old uptrend line drawn from the February and March lows,” he said.

The next upside objective for hog market bulls is a close above June’s contract high of 83.5 cents, Wyckoff said earlier today. (June recorded a high today of 83.375 cents.) A close above 83.5 cents “opens the door” for a move to 85 cents, Wyckoff said.

 

He said he “can’t rule out” a rally to 90 cents. “The bulls got very strong again this week.”

 

Bearish traders would regain some downside momentum if June futures closed below “solid” technical support at 80 cents, Wyckoff added, who bases his projections on trend lines, historical highs and lows and other technical systems.