April hogs gapped lower at the midweek open and then fell sharply into late in the day on fund related liquidation. The cash market also continues to descend on record large supplies and slow seasonal demand. The cash index was down $.49 at $68.83 and projected another $.27 weaker for Thursday.
We noted on Tuesday the sharp year over year increase in trimmings export sales, which has supported prices on both trimmings as well as slaughter sow prices. The chart shows that through last week sow slaughter prices through the month of February had averaged nearly $54, versus $40 in January and $45 in February 2017. Moreover, price spread between lean slaughter hogs and live sows has narrowed to just $15, the narrowest that spread has been in February since 2010.
Funds were reported last week to be net long just over 17,000 contracts, or the lowest since April. Our best guess is that funds are still long 10-12,000 contracts, and may need to get back to near flat before CME futures can bottom.
