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Are We Hitting the Bottom in the Lean-Hog Market?

USDA’s weekly slaughter estimate came in at 2.315 million head. That was next to the 2.316 discussed this morning. That is a slight dip from last week’s 2.344 as you would expect as is the norm for this time of year. Next week will obviously post a good holiday-related cut before the next surge of supply comes around. Last year, this surge in supply after Labor Day was even larger than expected.

Allendale has been a bear in this market for some time (correctly so). But just like in cattle, we do have to continue to ask questions about the unknowns. We call the normal seasonal futures rally from August 28 to September 15 an unknown. National Pork Month in October is a big deal. We are able to move some of the overage in supply that occurs in the fall. There was no such rally at all last year. This year we are a bit perplexed. On the bear side, this year’s production will easily surpass next year. On the bull side, we have two new plants that should be officially opened on Tuesday. How aggressively these plants buy, and the actual price impact, are still questions. We really like the idea of buying this market, not even from the October features discussion, but also because of how hard this market has fallen. By our numbers, this market has really taken the seasonal supply increase a little worse than expected. Production over the past four weeks has run 2.3% over last year. That is not as bad as our official 3.1% over last year estimate. For those itching to buy this market, we suggest sitting on your hands for now. It looks like we may have a bottom, but there are more questions than answers.

The August pork export numbers out of Brazil were released today. At 58,899 metric tonnes, it was over the 48,713 posted in July. Compared with last year’s 57,546 tonne export, this was 2.3% larger. Brazilian poultry exports came to 382,717 metric tonnes. That was over the 354,523 from July. The trade’s focus would be the year-to-year comparison at 16% over last year’s 328,738.

All of Allendale’s price projections are filled ($65 on the October and $56 for the December). That December estimate is made with Allendale’s Q4 6.851 billion lb. goal, 3.1% over last year. You are looking at sub-$55 hog prices if USDA is right with its August 10 numbers (Q4 prod +5%). For 2018, we see February at $62, April at $66, May at $72, and June with $76. We are satisfied with the hedges on hogs out through February that use the December contract. As of the open of June 5, at the equivalent futures price of $63.07 using December hog options, these hedges should be in place. As of the July 3 open, we also have feed cost hedges using December corn options. 

 

Rich Nelson
Allendale Inc. 
815-578-6161

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