Hog slaughter totaled 2.09 million head in early-October. The indicated 5,000-head weekly decline was somewhat surprising, but the total still matched up well with the 5%-6% annual reductions the September 30 Hogs & Pigs report implied for early October. The report indicated hog supplies will undergo an exaggerated seasonal rise during the coming weeks, with 2% annual reductions potentially putting mid-December totals around 2.3 million head per week.  Anticipation of that surge is weighing upon December hog futures.

We still think demand strength will be a major factor in hog and pork pricing for the foreseeable future. Unfortunately, the latest data and market prices are sending mixed signals. For example, the USDA released the latest monthly export totals Monday, stating U.S. August pork exports at just 351.3 million pounds; that not only represented a 13% annual reduction, it was the lowest monthly result since October 2010.  Sales to Japan and China also fell substantially. These figures partially explain the August price breakdown.

In contrast, the market has rallied strongly since Labor Day and has held up well lately. That suggests the preceding drop spurred renewed interest from domestic and foreign buyers, but one has to wonder if the surge has largely run its course, since both the February-April and June-July rallies lasted about six weeks and were followed by rather drastic reversals. If that pattern is repeated in late October and November, the confluence of weak demand and accelerating production might prove quite bearish. Concerns about this possibility are behind our persistence in holding on to short hedges.

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.