Why are Lean Hog futures rallying so strongly, could unannounced Pork export contracts be the cause? It doesn’t feel like strong domestic demand is the cause.
The July and August Lean Hog futures blasted higher this week making life of contract highs Friday. The Open Interest continues building with large daily trading volumes this week. This week’s price surge suggests something is “lurking under the surface” and could be reported in coming weeks; this information could indicate why the Lean Hog futures prices are surging so strongly. We expect the surging prices likely is due sizable Pork export sales; we doubt that building domestic Pork demand or technical factors alone could produce such a strong price reaction for the summer contracts. The Spot Hog market prices continue trading at a strong discount to the soon to expire June Lean Hog futures contract. If strong domestic Pork demand was the cause for the futures strength we would expect Spot Hogs and Wholesale Pork prices would be leading the futures not trading at strong discounts.
A recent news article from the LGP platform stated—“With pork accounting for 4% of China’s consumer price index, traders note prices have been on upward pace. The national average of Pork prices are up nearly 40% over the year ago period. Analysts say the gov’t has little pork in reserve and that could be a boon for Pork Exports in the US and other top exporters.” Smithfield Food, the U.S.’s largest Pork Packer is owned by a Mainland Chinese Company and in the past has been the preferred U.S. exporter to Mainland China.
LEAN HOG FUTURES:
The Lean Hog futures blasted higher this week led by the July and August contracts as these contracts make new life of contract highs Friday. The Open Interest continues building with large daily trading volumes this week. This week’s price surge suggests that something may be “lurking under the surface” and likely will be reported in coming weeks that may indicate why the Lean Hog futures prices are surging so strongly. We expect it is an indication of sizable Pork export contracts will be announced; we doubt that building domestic Pork demand would produce such a strong price reaction for the July and August Lean Hogs contracts.
JUNE LEAN HOG FUTURES, DAILY CHART:
The June Lean Hog futures bounced some this week, retracing most of last week’s selloff. The June contract will expire June 14th.
JULY LEAN HOG FUTURES, DAILY CHART:
The July Lean Hog futures contract rallied strongly this week, Friday closed at a life of contract high as the trade’s bullish attitudes spilled into the Hog futures. Prices also surged for Soybeans and to a lesser extent into corn; the higher corn and soybean prices should be pushing up hog feeding costs.
The August Lean Hog Futures, Daily Bar chart:
The August Lean Hog futures also posted a life of contract high Friday.
SELECTED WEEKLY HOGS-PORK STATISTICS:
- This holiday shortened week, the F.I. Hog slaughter was reported to be 1,899,000 head and was above last year’s Memorial Day by +1.9%.
- I. Hog carcass weights held at 213#, off -1# from a year earlier.
Mid-week the AMS/USDA Wholesale Composite Pork Carcass prices continued gaining modestly:
Wednesday’s Composite Pork Carcass cutout price continued grinding higher going to $85.62 cwt. compared with a week earlier at $85.03 and a year ago at $86.52.
Mid-week, Wholesale Fresh Pork Loin prices slipped a bit. Mid-week Wholesale Primal Pork Loins eroded a little going to $95.87 compared with a week earlier at $96.33 and a year ago at $99.55.
Mid-week, Wholesale Primal Pork Butts prices softened some more losing some of the premium to Pork Loins:
Mid-week Wholesale Picnic values continued eroding being reported at $54.00 per cwt. compared with a week earlier being posted at $55.18 per cwt. vs. a year ago at $61.46.
Mid-Week, Wholesale Rib prices set back as softer Post- Memorial holiday demand developed, Rib prices will likely soften until July 4th holiday demand builds in a few weeks:
Mid-week, Wholesale Pork Rib prices set back going to $152.36 per cwt compared with the prior week at $162.47 vs. a year earlier being posted at $196.18. as some holiday premium is washed out of the market.
Mid-week Wholesale Pork Hams prices appear to beginning to stabilize but are trading below the 5 year average levels:
Wednesday’s Average Wholesale Primal Ham price bounced being posted at $66.62 per cwt. compared with $61.69 the previous week vs. a year earlier at $60.69.
Mid-week Wholesale Primal Pork Belly prices firmed but appear to have little zip to this market as occurred last year.