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Hog Market Falling Is No Surprise, Analyst Says
April hogs only closed down 12¢ for the week. The June was 30¢ higher. This comes after an important milestone was made today. The wide trading range posted an 'outside day'.
Since it closed clearly positive, this implies better trade for Monday.
Weekly hog slaughter came to 2.438 million head. That was right next to our 2.437 morning estimate. Making up for the two previous weeks of weather related shortfalls, this week’s kill would be 4.8% over last year. Generally lower and lower production in summer is expected. Pork production, at 521.9, would be 5.6% over last year.
From the trade’s perspective, this week’s kill was a mulligan. It can be written off simply due to the previous two weeks. For Q1, we have a relatively benign hog slaughter expected, +1.5%.
Seasonally, there is a small slump in prices from the start of February to mid-month. This is often a good point to work on short-term buys for a move into March. One thing the trade is quietly concerned about is another spring like 2017. Sharply lower prices were noted. Futures are already working on a discount in that April.
Pork export sales on Thursday were good at 10% over last year. The previous three weeks were just plain poor.
For the 2018 picture, Allendale expects a 3.0% year/year increase in offered supply of pork (26.433 billion pounds). After exports and other factors, the U.S. consumer will see a 1.7% increase in the amount of pork offered to them on a per-capita basis (66.1 pounds). We expect the year to average $72 per lean cwt. That is just over the $70 price from last year. Due to cheap feed, U.S. producers can lock in a $27-per-head profit for hogs in 2018 assuming both feed and hog prices are locked in right now.
At a minimum, we would lock in feed prices now (feed grains, not soymeal). For speculative trading, we are simply playing a range.
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