May 25, 2017

Lean Hog Commentary

More On-the-Go | Corn | Soybeans | Wheat | Live Cattle | Lean Hogs |

Posted 05/24/2017

Cash hogs have been lower in three of the past five days now. We still call this a stumble due to the lower numbers needed for next week's holiday reduced kills. The trade, simply based on psychology, may be wondering if its premium to cash is too high. To be realistic, we still have falling production for several more weeks and a still-good demand for another couple of weeks. There is a reason for cash hogs to continue to rally into mid-June as futures already imply. We are interested in the post-mid June period though. Even though we have falling production at that time, we also have a step down in demand assuming normal summer heat kicks in.

The weekly Iowa/Southern Minnesota hog weight report showed a drop from 282.0 for the week ended May 13 to now 280.8 as of May 20. The trade generally looks at these week to week changes and will call this 1.2 lb. decline supportive for today's futures. It is normal for hog weights to decline from winter to the year's low in August. Allendale's focus is on the year to year comparison, in this case, -0.7%. We don't call this report a game changer in any way as the most recent nationwide number, from May 6, showed liveweights also 0.7% under last year.

We are moving out of our bullish viewpoint for this market into something a little more neutral. Between now and the end of the month we'll take action on the hedging side. Anywhere in the +$77 range via summer futures is a valid price to work from. Our focus is the October and December contracts. Additionally, feed costs hedges are needed before a summer weather rally. RN

Working Trade:

  • (4/26) Sold June 72 hog put 2.60, risk to 4.10, objective 0. Closed 0.07.

More On-the-Go | Corn | Soybeans | Wheat | Live Cattle | Lean Hogs |

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