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A Visit to the Hog Market
Did you notice the rally that the hog complex experienced
during the month of June? Live hog
prices surged 18% year-to-date and about 40% since bottoming out in late March.
The rally came thanks both to a free-falling metals complex
(funds moving their money – taking profits in metals and sinking their fortune
into “cheap” hogs instead) and the Smithfield Foods deal. China’s Shuanghui
International’s pending $4.7 billion deal to take over Smithfield Foods is also
helping to elevate hog futures. Although some in Congress said they have
regulatory issues, hog prices rose after the May 29 announcement of the deal.
The recent rally in hogs pushed the market value to $12
billion, excluding options, matching silver and surpassing the cattle market
for the first time ever.
However, the rally is easing as profit taking is in and from
pressure due to declining wholesale pork prices and the possibility that lower
corn prices could lead to larger hog supplies longer-term. A drop of nearly 4%
in wholesale pork prices over the past week is weighing on market sentiment, as
traders worry about a post-holiday drop-off in consumer meat demand.
But at the same time, worries about a virus that is
affecting piglets in several U.S. states point to diminished supplies. The
porcine epidemic diarrhea virus can result in high mortality rates in young
pigs. Older pigs can also get the virus but normally recover. The virus, which affects live hogs but is not
considered a threat to the food supply, has been identified in at least 15
In spite of the epidemic, third-quarter pork production is
expected to increase by 170 million pounds from the second quarter, which is the
second largest increase in 16 years. This could provide more seasonal pressure
than normal later this summer.
It’s obvious there are still a lot of scenarios yet to unfold
in the months ahead for the hog market. Overall, we at Stewart-Peterson feel
hogs have good value. Although a technical setback or market correction might
be justified, the big picture in hogs still looks positive. For your marketing,
the important thing to remember is what advisers at Stewart-Peterson call
“market scenario planning.” Through this process the different scenarios are
considered, allowing you to prepare risk-management strategies for multiple-price scenarios and help determine which strategies will yield the best price
using an assortment of risk-management tools.
Market scenario planningsm is a service of Stewart-Peterson
Inc. The data contained herein is believed to be drawn from
reliable sources but cannot be guaranteed. This material has been prepared by a
sales or trading employee or agent of Stewart-Peterson and is, or is in the
nature of, promoting the use of marketing tools, including futures and options.
Any decisions you may make to buy, sell or hold a futures or options position
on such research are entirely your own and not in any way deemed to be endorsed
by or attributed to Stewart-Peterson. Commodity trading may not be suitable for
all recipients of this report. Futures trading involves risk of loss and should
be carefully considered before investing.
Past performance may not be indicative of future results. Copyright 2013
Stewart-Peterson Inc. All rights reserved.