September 20, 2017

Lean Hog Commentary

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

Posted 09/19/2017

The December really sizzled today with 1.52 gains compared with moderate gains for the deferreds. We would suggest this is more from traders exiting bear spreads than any new influx of buying. Though wholesale pork was higher yesterday, this afternoon's 1.77 drop will remind the trade that things have not really changed.

The most recent retail pork price data showed better than expected pricing last week. Retail prices increased from $3.83 3/10 to $3.93 1/2 from July to August. That sounds great but is not really a right now situation. Retail prices generally lag the numbers in the real market, live hog and wholesale pork, by around two months. The numbers USDA reported last week were determined by wholesale pork levels from the summer, back when prices were at their highs. One positive issue that we will note is this August retail price ran 3.6% over last year at this time. That was an improvement over the July numbers at 1.4% higher than last year.

There's a lot to unpack about the chart attached with the comments here. The blue line represents retail prices at the grocery counter. When livestock economists use this data set it is usually adjusted for inflation. For general presentation purposes we do like to show the non-adjusted data as it represents the year to year hit that consumers are actually seeing from a psychological basis. The dotted red line is cash hog prices on a carcass basis (what CME Group futures trade).

One of our concerns that we have been hyping for some time is the trouble with the current blind expansion the industry has conducted. Yes, we on the live animal level are getting a greater share of the wholesale dollar with new plants on board. But those plants are simply middlemen in a market plagued with rising tonnage. Our concern is that we are getting a larger share...of a declining pork price. The good news is that we have a rising demand story. From January through August the retail data, unadjusted for inflation, was 0.8% under last year. We would expect slight declines in retail prices for 2018.

Producers are now marketing hogs that are in the red. This should last for several weeks ahead. Lower grain prices are good for the producer but this hog price issue is a larger concern. For 2017 all put together, producers will still pencil out solidly in the black. For the next few weeks, it may be uncomfortable. Our December expiration price is $56. Hold all hedges until November. RN

Working Trade:

  • (9/14) Stand aside


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

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