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National Hog Farmer is the source for hog production, management and market news
February 5, 2024
The discussion below outlines six fundamental reasons why I believe hog futures have forged a bottom and look to go higher into spring.
Cutout is holding 11% above this time last year. Pork loin and rib cuts are each up about 9% since Jan. 1. Bellies, the strong suit, are up nearly 40% since the start of the year. It seems the market has fully adjusted to the Prop 12 disruption. Overall demand for pork appears to be stronger than this time last year.
We’ve witnessed many downward revisions in slaughter as the backlog due to the holidays and harsh weather is worked through. Packer margins are highly profitable. The only reason for numerous downward revisions in the kill, in my opinion, is because the hogs just are not there in the numbers desired. As a result, cash hog prices are up 40% so far this year.
The lean hog futures spreads are telling me that bullish fundamentals are on the horizon. The June hog contract is trading $13.50 over April and appears to be ready to add to this premium.
U.S. pork exports are rising. Last year pork exports out of the EU were down 24%. U.S. pork producers increased market share of world exports and this trend should continue in 2024. Exports to Mexico (hams) have been record high and exports to South Korea (pork butts) have been strong. Exports to Latin America are increasing.
The three largest pork producers in China have lost billions of dollars over the last year. It's highly likely that African swine fever has riddled the Chinese hog herd (again as in 2018) and caused a panic liquidation. This panic forced production sharply higher as demand remains poor due to the hobbled Chinese economy. This could mean that China will be forced to import large amounts of pork before the end of 2024.
Finally, number six, in my opinion, it’s highly likely that the two previous Quarterly Hog and Pig Reports may have overstated the size of the breeding herd. After six months, this is starting to be reflected in fewer butcher hogs than expected by the market. We started hearing that major producers were culling aggressively back in May of 2023. Yet the September Hog and Pig Report only showed a 1% decline in kept for breeding numbers. The December report showed a 3% smaller breeding herd but both reports showed an astounding rise in litter size. The net result was larger pig crops with fewer sows farrowing. Somewhere, somehow, I suspect the growth in litter size was overstated and the decline in breeding stock understated. Just small revisions in both would contribute to a large drop in butcher hog numbers.
I’m thinking that the seasonality in hog futures will be flipped upside down. This would mean a seasonal low in late February followed by a major seasonal high in the late April to late May timeframe. My advice to hedgers is to refrain from selling futures outright and refrain from selling call options in any fashion. Instead, look to establish a price floor through long puts or through put spreads, leaving the upside to hog prices open. Mark it down; a $20 rally in summer hog prices is about to unfold.
Smith publishes his evening livestock wire daily. For a free 30-day trial to this information contact him via email.
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