High beef prices, historically low unemployment, and market adjustments following Proposition 12 could be behind the increased demand for U.S. pork.

Dennis Smith

March 4, 2024

3 Min Read
National Pork Board

My previous report dated Feb. 5 outlined six reasons why I thought hog futures were carving out a bottom. On Feb. 6, April futures settled at $81.25 and they bottomed two sessions later. On Friday, March 1, April futures settled at $88.07, for a gain of 682 points.

The pork carcass value on Feb. 5 was calculated at $86.23. The carcass value on March 1 was $94.45 for a gain of $8.22. Cash hog prices have appreciated more than 65% year-to-date. It’s rather interesting that when the article was published, I received several pushback comments suggesting that I was all wet in my analysis.

In review, my six potentially bullish fundamental reasons were: 1) cutout holding strong, 2) many downward revisions in the daily kills despite highly profitable processing margins, 3) bull spreads were strong, 4) U.S. pork exports were strong and rising, 5) massive culling taking place in China and, 6) likely inventory overcount in the two previous Quarterly Hogs and Pigs reports.

My advice was to refrain from hedging and certainly to refrain from selling futures and/or writing call options. Sadly, many advisors and bankers advised just the opposite resulting in hedges below the cost of production. Now producers are facing losses on both their cash hogs and on their hedges. So, for many, massive losses in pork production remains a fact of life.

I projected that a $20 rally in summer hogs was about to unfold. On Feb. 5 June futures settled at $96.05. On March 1 they settled at $102.05. So, we’ve just experienced an $8 rally. Twelve to go making my upside target in June futures $114. As stated in the title, my upside target in April futures is from $95 to $96.

For many reasons coming together, there appears to have been a shift upward in the demand for U.S. pork. I’m not a retail meat expert so I won’t try to be one in this article. I do know that frozen pork stocks are tight compared to this time last year. I do know that pork exports are rising as the U.S. pork industry is increasing market share of world exports, mostly from the EU.

Total pork exports out of the EU last year were down 23%. The U.S. and Canadian pork producers are in position to gain market share and that is exactly what is happening. This trend is expected to continue during 2024. Currently U.S. pork is the cheapest and highest quality pork in the world. Other reasons for increased demand could include high beef prices, historically low unemployment, a strong Peso, and market adjustments finally made in the wake of Proposition 12.

The fund managers are on board the trend and actually got on-board before many in the industry realized what was happening. Frankly, many in the industry still don’t realize what is happening. That’s because identifying changes in demand is most difficult when trading commodities. The consistent supply information provided by the USDA makes many analysts “one-sided” in their analytical work. This can prove to be a huge mistake.

However, as noted in my fundamental reason number six, I also believe that supply has been likely overstated by the USDA. This has not been proven yet. The next Quarterly Hog and Pig report will be released March 28. I’m expecting some downward revisions in this report.

As indicated last month, the seasonals have been flipped upside down this year. Contra seasonal moves are usually the quickest and most dramatic moves. Look for high in the late April to late May timeframe. While some measure of profitability is about to return to the hog sector, look for continued herd contraction at least through the first half of 2024.

Regarding China, the wildcard, my sources anticipate a bottom in Chinese pig prices by the second half of 2024. Possibly some significant Chinese pork imports may be evident sometime in the third quarter.

Smith publishes his evening livestock wire daily. For a free 30-day trial to this information contact him here.

About the Author(s)

Dennis Smith

Archer Financial Services Inc.

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