January 22, 2017

Lean Hog Commentary


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


Posted 01/20/2016

Since December 28 cash hogs have rallied 11.95. Wholesale pork has fallen by 2.53 during the same period. On the futures end the trade is wondering if weakness will be seen next week. Today's close was the lowest since January 6 on the April.

The National Bureau of Statistics pegged the 2016 pork production rate in China at 52.99 million tonnes. This would be 3.4% under the 2015 level. It is also the lowest level since 2011. Low pork production due to various factors has pushed hog producer profitability. Current gross margin rates are 700 yuan per kilogram produced. Back on January 20 of last year it was at 480. Back on January 20 of 2015 there was a negative gross margin (-20 yuan/kg). Most of this shortfall in production was filled by our competitors.

This week's slaughter came up a little shorter than expected. At 2.324 million head, it ran only 0.8% over last year. Our estimate from the morning was 2.337. This number would seem to be just low when compared against last year as well. At 0.8% over last year, it ran quite short of the 3.6% four week average gain over last year. It would also seem to be too low when compared with the December Hogs and Pigs report. Allendale's Q1 estimate, derived from that report and our own analysis, calls for a 2.9% year over year increase. With holidays and weather events disrupting normal schedules we won't get too excited about sounding an alarm here (low number counts).

On the seasonal discussion April futures have a known seasonal that suggests a good peak on December 1 and a straight down market to December 17. After a minor rally to February 1, prices fall into expiration. We only have a $4 premium in this year's April versus the February. Given this year's 6.8% year over year increase in Q2 production, the lack of premium is important.

Our 2017 hog/pork outlook is complete. This outlook will be presented at the Wednesday session of the AgLeaders Conference next week. I will give the fundamental outlook, including price projections. Greg McBride will then take over with the chart picture then the trading and hedging recommendations. The conference runs from January 24 - 25 each day from 2 - 4 pm Central. It is all online and can be accessed live via your computer at any location you would like (office/home/shop/banker/input supplier/co-workers/conference room). Allendale's outlooks will even be recorded and available for you to download at your leisure for up to two months. Drew Lerner's closely followed session on the weather outlook will only be available live. This conference is set up to provide you with a complete plan for the year. Anyone involved in agriculture and agricultural markets, both traders and hedgers, will find tremendous value. Because this is given to primarily a farming base, we keep the cost about 1/5 of what we would normally charge for a full outlook. We intentionally combine a good mix of traditional fundamental analysis with innovative research and price outlook methods. Have you registered yet?

We are currently holding a neutral viewpoint to hogs. RN

Trade Recommendation:

  • (1/13) Stand aside.

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


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