CME hog futures posted strong gains with October closing at $58.47, up $1.95 on short covering amid the hope that a seasonal cash low was near. ARC suspects that such “hope” is premature. October CME hog futures is nearing an open chart gap that was left back in early September at $61.075, and larger runs appear to lie ahead with cooler Midwest temps and a new corn crop.
Daily pork product prices closed lower with the carcass cutout under pressure due to a further slide in cash belly bids. Cash bellies have shed another $2.84/pound to $101.69. Friday’s carcass cutout closed at $77.36, down $1.93 at the lowest level in months. The last time that the US hog cutout was this cheap was early last spring.
The projected 2 day lean hog index closed at $64.07 (down $1.08), well above the close in CME October hog futures at $60.97. The discount of the CME to the cash market was one reason for occasional short covering bounces. However, until there is clear evidence of reduced US hog supplies, we doubt that any of the bounces can be sustained. ARC is positive hog prices in the 1st quarter of 2018, but a bottom is not expected until late November or December.
China reported a reduced hog herd overnight, but such statistics have not correlated with enlarged US pork export demand. Private sector Chinese sources argue that China’s hog herd data is flawed based on producers trying to avoid environmental screening.
AgResource argues that CME rallies of $3-5.00/cwt offer new hedging opportunities in hog futures. It’s premature to forge a seasonal bottom.