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Hog Charts Are Bearish
The week’s hog kill will total 2.417 million. That is over our 2.409 morning estimate. Traders won’t like to see a rising production at a time when we should be trading mixed ahead of the next big decline in supply in April. This week’s kill is 4.4% over last year. That is over the 2.7% higher than last year four week average. Pork production will total 516.2 million lbs, 5.0% over last year.
The price impact from this rise in supply was exaggerated initially due to the packer margin problem in February. Two weeks ago cash hogs lost 5.05. Last week they lost 2.42. This week, through Thursday, the drop is 0.29. The Friday morning cash hog report showed an oddly weak 1.80 break. We assume that will be corrected by the Friday afternoon update.
We have been discussing this comparison with 2017 for a few weeks. Tonight's chart shows why. A slight hump in supply in the spring, like last year, is a concerning issue. Last year's increase in supply peaked in the last week of March. This year's should peak before that point. This brings our discussion about April futures being undervalued comes into play here. April futures are only trying to find the cash hog price on April 13. There will be a difference between supply now (March) and the second week of April. The market is pricing April hog futures as though it is a right now cash hog product.
If we are wrong, and supply continues to increase through the end of the month like last year, then a similar percentage price decline would put this year's April at 65.79. That is not in the cards based on our numbers but we do have to point it out.
The charts are bearish. The trend since January is down. We just hit new lows for the downtrend yesterday. However, when we do have a change in the fundamentals there are guideposts for bulls. The April contract has a gap still open left from Wednesday's gap lower trade. That needs to be filled from 69.50 to 69.80. The June has a gap open from 81.80 to 81.92.
The weekly export sales report noted 21,497 tonnes of US pork were sold in the week ended Thursday the 22nd. We call this a win as it was 30% over last year in the same period. We now have three weeks in a row of good sales. Year to date sales are now 6.6% over last year.
Allendale's official expiration price for the April is $72. If we follow the normal seasonals for cash hogs in the spring, we have a bearish story this month that improves in April with the start of spring buying and lower supplies. We are itching to buy this market right now but will still hold off in the short term.