Hog futures began 2016 by diving in concert with the global equity markets, but the nearby February contract later rebounded substantially from support associated with its pivotal 40-day moving average. On Tuesday it smashed through chart resistance at the 60-cent level and posted its highest close (at 61.10 cents/pound) since early November. Traders apparently payed much more attention to upward spot market trends than to the premiums over the CME index already built into 2016 futures prices.
The recent strength likely reflects hopes for robust pork demand throughout 2016. That is, mid-February prices are expected to top year-ago levels despite ideas that supplies will continue topping year-ago levels.
Still, the futures rally also seems to reflect optimism on the supply front, since traders seemingly agree with the implications of the December Hogs & Pigs report. That suggested mid-winter kills won’t average more than 2 percent over year-ago levels and might match or fall below early-2015 rates in March. The early returns on that score are mixed, with total slaughter over two holiday weeks matching comparable year-ago results. Our source estimates this week’s kill will top 2.35 million head, which would exceed its blizzard-reduced 2015 counterpart by more than 9.4 percent. This seems consistent with the Hog & Pig results, but similarly large gains through mid-January could greatly undermine recent optimism.