After this past week we think it has become evident that the price of the live hog futures are having a very difficult time in keeping up with the ever increasing product market as well as with the live hog market. We will share our opinion on what we think is going on and what this means in respect to how we trade the hog futures, but first let us walk you through what the product and hog market did this past week.
*Product Price on Monday 6/12 Price as of Friday 6/16/17 Change
Loin 92.43 91.69 (.74)
Butt 103.02 101.56 (1.46)
Picnic 64.78 64.32 (.46)
Rib 140.00 149.44 9.44
Ham 67.23 70.23 3.00
Belly 159.34 169.89 10.55
Carcass Cutout $93.14 $95.63 $2.49
Base Price $77.22 $84.72 $7.50
*National Live Price $58.90 $64.26 $5.36
As you can see, the carcass value only gained $2.49 while the live hog price gained $7.50
Now, lets look at the same time frame and compare what the first three live hog futures contracts did this past week.
Live Hog Contract Monday’s Close Friday Close Net Change for the week
July Hogs 80.70 82.33 1.63
August Hogs 80.00 79.13 (.87)
October Hogs 68.50 66.78 (1.72)
The only contract that was even close to keeping up with what was going on in the live market was the July contract, but it only gained $1.63 for the week.
So what’s going On?
Here is the analysis of what we think is behind this disparity.
- The producer has sold hogs ahead and taken advantage of the higher prices. The evidence for this is the more than seasonal decrease in slaughter weights. This years live hog weights for week ending 6/5 was 279.4lbs. compared to 281.9lbs. a year ago.
- The pork packer has good margins (about $7.00 cwt.), and is wanting to keep his daily slaughter at capacity because he has foregone trying to kill Saturdays. So in order to keep expenses on a per head basis down, he will be reluctant to cut kills much more than that for the time being. The key to this is ‘for the time being, this will change.
- The weather has turned hot and has become a factor, as we have cautioned readers in previous newsletters. The hogs aren’t gaining as much on a daily basis as in cooler conditions and the producer can be selective on live bids because he is not under pressure to ‘have’ to sell hogs to keep the flow through his finishing units current. This, too, will change.
- The product market is steady to strong. The retailers have replenished their working stock and are buying for the Fourth of July holiday. Be careful here as cheaper beef is just around the corner, and we suspect it will be featured at the expense of the pork market. Bellies are legitimately strong and are going higher. The 180 level is a possibility which could add another $1.50 cwt. to the carcass cutout.
- The last point we need to keep in mind going forward is the that the weekly federally inspected hog slaughter has been running in excess of 2,200,00 for the last several weeks. These slaughters were the highest on record for that time of year. That is just not sustainable going through the summer. While we will continue to slaughter a half to 1% more through the summer than we did a year ago, we cannot continue to slaughter hogs at a 2.2 million rate. Even then, the packer will see his margins get compressed by virtue of an increasing hog price and a product market that will not respond in kind.
For more information about the Swine Times and trading strategies, contact Donna Hughes at 312-706-7615 or email@example.com
*USDA National Hog and Pork summary
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