Despite persistently large slaughter totals that have easily exceeded levels implied by the December USDA Hogs & Pigs report, hog futures have remained quite strong. Indeed, the nearby February contract surged over 2.0 cents to close at 61.90 cents/pound Tuesday. That at least partially reflected the concurrent equity market advance, but it clearly represented industry optimism about the short-term outlook as well.
The quarterly hog report implied hog supplies would remain at least 2% over year-ago levels through mid-winter, which would clearly require slaughter slow substantially from recent rates. But current futures strength also implies vigorous demand growth as well. For example, the CME lean hog index averaged 60.66 cents/pound at its mid-February 2015 lows, whereas Thursday’s February close implies prices will reach 62.35 cents at the same time next month. The problem for bulls is that the CME index has been slow to rebound from its Dec. 31 low at 52.87 cents/pound. It’s expected to reach 55.12 cents when officially quoted later this morning (1/15), but that’s still 7.5 cents below this week’s 62.62-cent high.
We at Doane are actually quite optimistic about the spring-summer hog outlook, thinking pork demand will prove much stronger than is generally anticipated. Conversely, it seems as if the Chicago market has gotten ahead of itself at this point, which is why we are now considering hedges of anticipated February-April marketings.
Editor’s Note: Dan Vaught is a livestock economist for Doane Advisory Services, St. Louis, Mo. Doane distributes a number of timely, relevant newsletters to farmers that contain expert commentaries and market advice. For more information, call 314.569.2700 or go to: www.Doane.com.