The product market has turned and the live hog prices are following them.
Below is how the weekly product market changed for the week ending 8/4/ 17
*Product Price Monday 8/7 Price Friday 8/11 Net Change
|Carcass Cutout||97.56||94.44||– 3.12|
|* National Carcass Base Price||$78.72||77.85||-.87|
|* National Live Price||$61.36||61.59||.23|
**Estimated USDA Hog Slaughter Week ending 8/12/17 2272
Actual USDA Hog Slaughter Same Period Last year 2246
% change year over year +1%
As you can see, the carcass value lost 3.89 cwt. while the live price lost .07 cwt.
Live Hog Contract Monday 8/7 Friday 8/11 WTD Net change
August hogs 83.73 84.65 (.08)
October Hogs 68.53 68.63 .10
December Hogs 62.63 63.25 .62
February Hogs 66.73 67.45 .72
Looking into next week:.
- The pork product market was a surprise this week, given the time of year and the numbers of hogs the industry slaughtered. Swine Times does not believe next week will be quite as kind to the pork industry as it was this past week. The time of year will be working against the market. Pork features are simply not that common in the middle of the month of August. On top of that, next week’s slaughter is projected to be 2,325 million head. Swine Times believes the product market will just not be able to maintain these levels with a weekly slaughter this large.
- As we have stated ad nauseam, when the pork bellies start to fall, the pork packers could potentially lose a lot of money out of their cutouts in a very short period of time. For example, if bellies were to drop from $2.00 cwt. to $1.40 cwt., the cutout would lose $7.00 cwt. If the cutout is $9.00 cwt. (Swine Times projection), then the packers would have lost most all of their margin. That would most likely cause them to change their bids on live hogs or how many hogs they process in a given week, i.e. cut the kills back.
- The retail cuts probably will not go substantially lower, but they won’t go higher, either. This means there will not be much, if any, of an offset for the belly loss.
- There will be even more pressure put on the product market the following week. The product from the 2325 kill will most likely not clean up at the plant level. Therefore, this left over product will put more downward pressure on the market the following week as the provision desk managers will be looking for bids to clear the meat and keep their stock rotated.
How do we trade this?
- The longs and the funds in the market may attempt to put the October hogs up to $70 after the August contract expires on Monday. Swine Times doubts this will happen, but keep that in the back of your mind when selling these October hogs on rallies.
- There is a big discount in the October hogs, but it’s there for a reason, as there are a lot of hogs coming to market the next 90 days. Be cautious selling them, for any good news from exports or forward sales of product could cause a steep price corrective rally.
- Swine Times believes that the long February hogs-short December hog spreads can make 200-300 points as weekly slaughters get larger and the product market declines further.
- Long term, we want to be short October hogs before Labor Day and maybe long or spread against the December hogs after Labor Day.
- Swine Times is looking at being long LHV, short LHZ, and long LHG at some point in the future. These butterfly spreads work fairly well in volatile markets.
*USDA National Hog and Pork summary
** Expressed in thousand head
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