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Hog Data Supports Bullish Bias, but That's not Ours, Analyst Says

The hog pipeline is still full.

USDA’s 1 p.m. Friday Estimated Slaughter report suggested the week’s total at 1.849 million head. That is just a few under our 1.855 million estimate that we discussed with newswires this morning. That would be 1.3% over last year, a bit under the past six-week average of 2.9% over.

As a reminder, we are using hogs from the kept-for marketing hog numbers that weighed over 180 pounds, as of June 1, from the most recent Hogs and Pigs report. That group ran 3.7% over last year. The next weight group, that will soon be in the mix is the 120- to 179-pound group, as of June 1. That group ran 4.3% over last year.

Though we will happily be through USDA’s supply numbers, this may not be a game-changing issue. You could argue that general slaughter numbers in recent weeks are running slightly under expectations. That is potentially true. We would not suggest 1% over last year is the word.

Though there are people who are bullish, even at these higher prices, we are not one of them. The year’s lowest offered supply to packers is either just before or just after the July 4 week. We certainly can have hog price rallies in the second half of summer but they generally need a clear fundamental reason. If slaughter numbers continue to run tighter than expected, then we can entertain this thought.

The weekly pork export numbers were disappointing today. Only 13,181 metric tonnes were sold in the most recent week. That was 19% under last year. As a reminder, you will likely see different meat export data from other news sources. Many quote shipments rather than sales. We favor the sales numbers, as this is new information. Shipments are simply the sales made weeks ago. Last week’s export sales report showed some impressive numbers, 26,222 tonnes sold (97% over last year).

Hedges should have been applied on the open of June 5, at the equivalent futures price of 63.07 using December hog options. We have no problem with the market’s pop past that point in the near term.

This is the summer.

Additionally, we advised only a bear put spread or a bear put spread with a short call on top for more experienced hedgers. Both of these strategies fully allow for a market move higher.

This week’s action for producers was to get feed hedges on. That would have been made off Monday’s open at around $3.95 the December corn contract. We advised using options and discussed a limited risk bull call spread. Like an insurance policy, there is an upfront charge and that is all.

If the market rallies, the gains in the position offset your higher costs from purchases on the cash end. If the market falls, you are only out the upfront cost and can participate in buying cash grain at cheaper prices. We are highly concerned by the forecasts of 95°F. and higher for much of the WCB right ahead of and into pollination. 

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Rich Nelson
Allendale Inc.
815-578-6161
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