July 20, 2017

Lean Hog Commentary

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Posted 07/19/2017

We are still playing around with wholesale pork pricing at some lofty levels. The trade is very respectful of the buildup in hog numbers that are offered to the market seasonally from early July through November. On the other hand slaughter in recent months here at the tightest supply of the year, has been just a little trimmer than originally expected. Wholesale pork, through today's morning report, was pegged at 105.25. The current peak for the year is 105.82 from five sessions ago.

While cash pork is still strong many many not be aware that cash hogs likely have topped. Today's morning report showed the closely followed Iowa/Minnesota run at 84.42. That is almost $4 off the 88.06 peak posted on the 6th of this month. Don't be surprised if the two separate levels of the pork market don't trade lock-step. That is not uncommon for the summer at times.

The weekly Iowa/Minnesota hog weight report showed a decline in the latest week from 278.0 lbs. per live barrow or gilt to now 276.8. Declines on a week to week basis until the year's low in weights in August are routine. Compared with the previous year's 277.7, this number is 0.3% lower.

The monthly Cold Storage report will be out on Monday. Allendale sees end of June pork stocks at 540.858 million lbs. That would be a 51 million lb drawdown from the previous month. The five year average June drawdown is 45 million. We suggest that tighter than expected hog numbers offered last month, at also offered at slimmer weights than last year, tightened the cash pork market a little more than packers expected.

A subscriber requested a visual with our Chinese hog pricing and margins discussion from recent days. Gross margins for Chinese hog producers are still strong but have slipped quite a bit from last year's record levels. They were up to 1,100 yuan per head last year. Current levels are at 280 yuan per head in the Jilin province. That is still over the 100 average posted in the 2010 - 2014 timeframe. Falling Chinese pork prices, due to their massive incentive for expansion, is bearish for US pork. Our exports to China jump when they have tight supplies and high prices. This does not mean we are bearish to US pork exports. We are only noting that one of the exciting wildcards, China, is not in the bullish playbook right now.

Deferred futures in recent days have divorced themselves from the strong August futures. It makes sense as everyone expects cash pork to peak "any time". For ourselves, with more of a longer term approach, we are not getting too excited. We are satisfied with the hedges on hogs out through February that use the December contract. As of the open of June 5, at the equivalent futures price of 63.07 using December hog options, these hedges should be in place. As of the July 3 open, we also have feed cost hedges using December corn options. There are no changes for either of those issues. RN



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

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