My first hint of a bullish supply situation in hogs was in my article dated Sept. 2. By October, I was discussing the missing hogs. Now, in November, there’s no explanation needed, the hogs are simply not available for slaughter as projected by the September Hog and Pig Report.

Six weeks of slaughter short fall is enough to call it a trend. The question now; how long will the hog numbers continue to come in below projections? By the end of November numbers should start running below year ago levels. Does this mean instead, they’ll be running 3% to 5% below last year?

The misses over the last six weeks have been from 3% to 6%.This is a huge over-count by the USDA. It will be interesting to see how they approach this in the December report. Will they simply revise numbers downward, or will they provide the industry with some sort of explanation?

My first hunch was that somehow the large Smithfield contraction was missed in the survey. However, backtracking and looking again at the September report, I see that breeding numbers in Missouri were down 10%. This is where Smithfield was actively closing barns. So, it appears to have been reflected in the report.

In the meantime, we’re looking at a powerful strong hog market. As discussed last month, I contend that two major forces are at work: lower supply than expected and a shift upward in the demand for U.S. pork. The value of the hog carcass is up from 10% to as much as 15%. This is happening with year-to-date slaughter up 1%. Increasing inelastic demand in the face of lower supply than expected is a powerful force.

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The December hog contract made it to my upside target of $84. This is where the strong October went off the board. My upside target in the February contract is $90., but not without some volatility. The funds are long, a record large 102,000 contracts. The Goldman roll will soon see huge open interest move out of December and into February. Unless more hogs start showing up, which looks doubtful, my upside target in the February contract should be met.

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