Doane Market Watch: Supply cut's role in record hog prices

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Last week’s hog slaughter reached just 1.859 million head, falling 9% short of the year-ago figure.  However, huge increases in hog weights reduced the annualized cut in pork production to ‘just’ 4.2%. The PEDV-driven supply cut almost surely played a role in sending hog prices to fresh records, with the latest quote, at 134.17 cents/pound, topping the April peak by almost 4.0 cents.  Strong demand has again played a major role as well.

Hog kills should total about 1.845 million head this week, then dip to 1.83 million during the two weeks following.  The industry obviously anticipates a big midsummer hog shortage.  But August futures dipped to 128.85 cents/pound Thursday, which implies a big drop from current cash levels.  That suggests the recent demand surge will soon dwindle.  

Traders clearly expect a substantial fourth-quarter decline in prices, since hog supplies typically increase and demand for most pork cuts wanes as the holiday season looms.  Moreover, having the June 2015 contract, which often approximates the anticipated annual high, trading about 6.0 cents below December indicates extreme pessimism about 2015 prospects. Bears may be correct on this point, but that may be a self-defeating prophecy.  That is, producers comparing fourth-quarter price prospects to those for next year, seem unlikely to divert money-making gilts from fall sales in order to turn them into sows producing a bunch of money-losing hogs next year.

 



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