A Longer-Than-Expected Cash Hog Rally
April futures ran 1.72 over last Friday’s close. That’s not a bad deal for a rally that hasn’t been based on new pork demand or lower hog supply. We are getting a rally in hogs based on packers giving up their record margins from last quarter.
This week’s kill came to 2.327 million according to USDA’s Friday afternoon report. That was right next to the 2.325 we discussed in the AM. Though seemingly too large at 6.8% over last year, this helped make up for two weeks of low numbers. As a whole, we still suggest this market will be on target for our 2.9% higher than last year’s Q1 estimate.
Allendale expects pork production this year will run 3.5% over last year. On the positive side, every single futures contract is over the current $62 breakeven. Given the fact that we are due to losses in 2017 or 2018 due to the normal Hog Cycle, getting hedges on is a good idea. Our expected expiration prices are $63 for Feb, $66 for Apr, $77 Jun, $63 Oct, and $58 December. The February target will be too low since this cash hog rally has lasted much longer than anyone expected. Again, on the positive side, this allows for a chance to get great hedges in place.
On the seasonal discussion, April futures have a known seasonal that suggests a good peak on December 1 and a straight down market to December 17. After a minor rally to February 1, prices fall into expiration.