Many in the hog/pork industry are clearly looking for major reductions in market hog supplies during late spring and summer. A big portion of the anticipated reduction is entirely seasonal in nature, since hog slaughter typically reaches annual lows in late June or early July. The winter spread of PEDV disease very likely reduced those totals even farther. Indeed, analysts with the NPPC have reportedly predicted 10% annual reductions at times this summer, although the peak incidences of PEDV suggest those losses could be worst in late July or early August. That explains the premiums July and August hog futures now carry to the June contract (which typically leads the CME complex).
Still, bullish traders have to be having second thoughts about summer price prospects, since recent hog and pork production have not declined as sharply as was probably expected. For example, early-May hog slaughter fell only about 3.3% below comparable year-ago totals. In fact, those results essentially matched supply totals implied by the March USDA Hogs & Pigs report. Whether the report’s implication of 3%-4% reductions in late spring and summer will also hold is very much open to question.
Bulls have very likely been surprised by the fact that the modest slaughter reductions and major increases in hog weights actually pushed early-May pork production above year-ago levels. That will probably be the case again this week if market experts are correct in anticipating a kill around 2.01 million head this week. When one combines the indicated production totals with diminished demand from customers suffering from sticker shock, this suggests persistent short-term price weakness. Anticipation of that slippage is a big reason we currently recommend increasing late-spring price protection for anticipated hog sales.