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Hog Market Sees Peak Demand, Analyst Says

It would appear that the bull rally that is over a month long is now feeding from its own enthusiasm. New contract highs may have brought a few more chart-based traders into the fold. We even had a very experienced grain-only newswire reporter ask us about it this morning, which was unusual.

Supply

This week's hog kill was estimated by USDA at 2.192 million head. It is no surprise this is the smallest kill of the year for non-holiday weeks. We would argue that the size of this week's kill is still a little lower than you would expect, though. At 0.3% over last year, it is a bit off the 4.8% year-over-year gains seen in the past six weeks. Bulls would suggest this was due to smaller-than-expected hog numbers showing up, thereby supporting a move over $80 for summer futures.

Demand

On the seasonal issue, we have been intentionally a little vague about the "when" that this market could post a top. It is generally posted anytime from May through June. The "when" of the exact timing comes from the summer supply and also demand. In the short term, domestic end users have chosen a little more pork features set for June. Export sales are also doing well with Thursday's 27% higher than last year's number. We certainly can agree that this market has a valid reason to see prices hold strength in the short term.

Before everyone gets excited, we do not have reason to suspect this will be a runaway cattle market rally. We are at the peak demand of the year, likely weakening a little in the coming weeks due to warm weather, and have a short-term interest in the "smaller than expected supply for this week" story. It is not quite time to fight. This market will sell orders for speculative sales. We have no problem with hedgers starting work on long-term sales. We will start recommendations for that next week. Don't forget, we will be active long hedgers for feed costs before a summer weather rally. We are equally concerned about Q4 profitability from pork prices falling as we are with feed costs rising.

Rich Nelson | Allendale Inc. | 815-578-6161

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