The late-August reduction in hog supplies persisted during the week of Labor Day, with kills once again falling about 10% short of the year-ago total. The relative size of those cuts seems likely to diminish during the days and weeks ahead, since reports of PEDV outbreaks declined significantly after March 1 this year. Moreover, late summer and fall hog and pork production should routinely exceed August levels on a seasonal basis.
Nevertheless, the CME index has rebounded strongly after dipping to 95.45 cents/pound on September 3. Indeed, October and December futures are now trading at sizeable premiums to that low, thereby suggesting the fourth-quarter market will remain at higher levels through the balance of the year. As pointed out previously, such occasions are historically rare.
As has been the case since late winter, the strength of hog and pork demand will probably play a big role in fourth-quarter hog pricing. That is, torrid buying greatly exaggerated the massive rallies experienced in the February-March and June-July periods. Vigorous buying is apparently exaggerating the seasonal September bounce, but how well that will be sustained is open to question, especially in light of the latest monthly trade data.
That is, U.S. pork exports fell to a three-year low in July, as soaring prices hit international clients. Whether the early-September demand surge is sustainable is critical to the late-2014 outlook. We harbor significant doubts.
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.