Two key developments have occurred early this year. Ham prices have corrected downward by more than 30 cents and and funds have taken profits on long-term bullish positions. The result has been a downward correction off the highs in lean hog futures with the February contract recently trading below $80, about $10 off the late November highs. June hog futures are now trading near $98, $5 off the late November highs.

In my opinion the funds got on-board the hog market early, near the lows and before nearly all fundamental traders had any clue what was happening. Hog numbers, in early October, started running well below projections based off the September Hog and Pig Report. While adjustments and revisions were made to the September report, the USDA seems fully content to put out inaccurate numbers in the December report.

When reports conducted by surveys are consistently inaccurate, always follow the money. Who has the incentive to provide USDA with inflated inventory numbers? Packers do. While undocumented and certainly unproven, it’s my opinion that packers are falsely inflating hog inventory to keep hog prices down and margins up. I’ve sent inquiries to the USDA stating this opinion with no response.

Early evidence suggests that the December Hog and Pig Report has also overstated the market hog inventory. My sources also indicate that porcine reproductive and respiratory syndrome disease challenges are actively reducing the size of the December/February pig crop. Eventually this will make a difference and force hog futures higher.

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The sharp break in ham prices has stimulated a huge volume of trade. In the holiday week of New Years, the volume in heavy weight hams exceeded 13 million pounds, the highest weekly volume in two years. The fact this occurred during a holiday week is even more impressive. In my opinion, hams are being socked away into frozen storage for export shipment in the weeks to follow. If accurate, this will keep pork export shipments large in the early weeks of 2025.

The funds are not going anywhere. Sure, they’re taking profits on long-held positions but look for the funds to remain committed to the long side of hog futures during the first half of 2025. Exports are rising, hog weights are not above the previous year indicating that producers are current, PRRS is on a rampage and numbers continue to fall short of expectations. These fundamental factors should contribute to an impressive uptrend in futures during the first half of 2025.

Cash always tells the true story because packers will never pay more than they have to. As we begin 2025, cash hog prices are $35/cwt higher than this time last year, or up nearly 80%. Perhaps even more important, iso wean pig prices are sharply higher than this time last year. This strongly suggests tight hog numbers six months down the road. I’m projecting a $20 rally in summer hog futures from current levels.

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Smith publishes his widely followed evening livestock wire which is published daily along with a morning livestock comment and midday pork and beef update. For a free 30-day trial to this information flow, send an email to: [email protected].