My past two hog articles have not been hopeful. They’ve been focused on the negative. When the August futures contract went off the board on Aug. 14, the October contract was trading $17 discount to August. At that time the futures market, like myself, did not have much hope for higher hog prices down the road.

In the futures markets, sometimes things can change quickly. Following the expiration of August futures, the October contract rallied sharply. Technically speaking, the market has become very strong. Key resistance levels have been penetrated. Futures are now trading well above the 40-day, 50-day and even the 200-day moving average. The bull spreads have shown strength on this impressive move and open interest has jumped substantially. Indeed, the commitment of trader's report indicates that funds have moved from a net short position and they’re now building a long position. It currently appears highly likely that contract highs may be challenged in the October contract before it goes off the board on Oct. 14.

What has changed?

Admittedly, I was caught completely off guard when the market changed violently from downtrend to an uptrend. It happens. After doing some major digging I’ve come up with two possible reasons for the abrupt change in direction of hog prices.

The first and perhaps most likely and most important reason is a change in demand for U.S. pork and chicken. Due to tight beef supplies retail beef prices have been record high throughout 2024. We’ve witnessed a surge in the fresh beef 90s which are beef trimmings used for making ground beef. Many may not realize it but most beef consumption in the U.S. is through ground beef. Most of us thought the main reason for the surge in fresh 90s was the fact that beef cow slaughter has been substantially lower this year. Beef cows are used solely for production of beef trimmings. Demand has been so strong for ground beef that users have been forced to grind primal beef cuts (rounds and chucks) into trimmings. This further supported the beef cutout value and kept the uptrend going in live cattle futures. However, live cattle futures peaked in late July.

I now believe that inflation wary consumers, sometime during the early springtime, began to “trade down” at the retail beef counter. They’ve been shying away from expensive beef cuts and moving toward ground beef.

Evidence also indicates that consumers have been sourcing more meals at home. Restaurant traffic is down. However, ground beef is not cheap relative to pork and chicken. It now seems highly likely that consumers are moving away from beef and toward pork and chicken to stretch their food dollars. This trend has been confirmed by several food companies recently.

Consumers, especially middle- and lower-income consumers, are hurting badly from inflation, particularly food price inflation. The stock price of Dollar General recently fell sharply. The CEO stated in their earnings call that their customer base is completely out of money by the end of the month. Much cheaper pork and chicken are in an excellent position to pick up new demand in this current environment.

Pork can also see exports increase over the next year. U.S. pork prices, except for Brazil, are the cheapest in the world. Indeed, just recently we saw South Korea come into the U.S. market and purchase a large amount of pork butts. The price was attractive, and the demand surged. For a fundamental meat analyst, detecting changes in demand is most difficult to pinpoint. Bu

The second possible fundamental reason for the abrupt change in the direction of hog prices is an overcount in hog numbers. This theory appears likely but has not been proven yet. For over a year the industry has been in contraction mode, liquidating sows. But due to improved efficiencies in raising hogs, a surge in pigs per litter has prevented market hog numbers from declining. It seems likely that the surge in pigs per litter has been overstated. There’s space in the system, meaning there’s empty barns across the hog belt.

One result of this fact is rising average live hog weights. With corn prices dropping to four-year lows, producers now have an incentive to feed pigs longer. Feeding pigs longer is very difficult is there’s no available space. Average live hog weights have been running above last year all summer. At the same time, there is evidence that some packers are pulling their pigs ahead of schedule. Finally, strong prices for Isowean’s and feeder pigs indicates fewer pigs on the ground than inventoried by the USDA. So, in my view, there exists the possibility of a hole in marketings at some point in the future.

Futures remain discounted to the CME lean hog index. The latest index stands at $86.49 with October futures recently settling at $82.22. If my outlook is correct, futures should move over the index soon. The next quarterly Hog and Pig report is scheduled for Thursday, Sept. 26. Yes, in my opinion, there is hope that hog prices are headed higher.

Smith publishes three reports each business day with his signature piece the widely followed Evening Livestock Wire. For a free 30-day trial to this information flow, send an email to [email protected].