Content ID

277611

Cash Hog Prices Fall for Third Week in a Row

Lean hog index is expected to drop.

Hog slaughter this week would run 2.569 million head. That was just over our 2.564 morning estimate. This is a slight cut from last week’s all-time record of 2.589. This week would run 2.1% over last year.

Just after the hurricane, the trade was expecting +2.6 million head kills for five or six weeks in Oct/Nov. That was based on the September 27 Hogs and Pigs report that estimated market-ready hogs would run 3.5% over last year from September 1 through early December.

We just are not seeing that (implying the Hogs & Pigs report overestimated the front-end supply). Allendale expects +2.6 million head kills the week before Thanksgiving and the week after. We still expect the Lean Hog Index to slowly drop down to $58 by the time December futures expire. Previously, we expected a sharp break in the LHI to sub-$52 during November then a rebound to $58 in December. Our goal was to buy a sharp dip in prices at the worst of the peak supply.

Cash hogs still fell for the week. This is a still a very high pork output. However, the $1.10 drop for the Iowa/Minnesota through Thursday is a bit less than expected.

This will mark three weeks in a row of falling cash hog prices. Futures are based off the CME Lean Hog Index. This is a nationwide measurement of cash hog prices. This index will be 64.61 on Monday’s release. This is down from the 69.36 peak earlier this month. Based on the still-large numbers coming down the pike, we expect $58 for the December at expiration.

Allendale has been quite skeptical over the hoopla associated with China’s ASF problem. We fully expected it to grow sharply and be an issue that captured the commodity media’s attention. We do not expect the U.S. to send any pork to China with the heavy tariff issues. Some have suggested that China would import extra from our competitors and that we would sell extra to some of their buyers. At this point, there is no evidence of extra U.S. pork sales to anyone. As noted yesterday, last week’s sales were 52% under last year in the same week. The four-week average is 9% under last year. Our year-to-date sales are only 4.4% over last year. That is still under USDA’s whole-year goal of a 6.3% increase.

The CEO of Smithfield Foods, the nation’s largest hog producer and largest hog processor seems to mirror our viewpoint. “Certainly in the short term here as this trade war has heated up, it’s made the trade with China very difficult – to even stopping at various points – because the tariff that’s been imposed makes it not viable to do that.”

His comments did not exactly indicate we would not send product to China. He did not exactly say we wouldn’t fill the gap left by competitors. For a meat CEO to state bearish export news, someone who has every reason to parrot positive news, we take that as agreeing with us.

In other news, China confirmed another ASF finding in the Guizhou province.

 
 
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Rich Nelson
Allendale Inc.
815-578-6161
This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
 
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