There are two commodities that have my keen interest and attention at the start of 2022: rice futures and hog futures. Due to a combination of lower supplies and potential for steady to higher demand, these are two commodity markets which may have the ability for prices to ignite higher in the coming months.
Taking a step back to look at where prices have been over the past two years, hog futures have experienced a very dramatic price range. After the pit fall aftermath of COVID disruptions in early 2020, hog futures traded as low as 37.00 to as high as 123.07 in June of 2021. Currently front month February 2022 hogs are trading near $81.10 while the deferred contracts are up near $100.00.
Hog futures have both strong demand and tighter supplies into next year as aspects of price support going forward.
Reduced hog supplies
On the supply side, according to the most recent Hogs and Pigs report from USDA, all hogs and pigs in the United States are down 4% from the year prior.
Two events occurred in 2021 which contributed to the reduction of supplies. Porcine Reproductive and Respiratory Syndrome affected the American hog supply in 2021. PRRS is a disease that has two major outcomes: reproductive impairment and respiratory disease in pigs of any age, ultimately leading to increased death loss.
Something else that popped up on the Hogs and Pigs report was that there was not an increase in the breeding herd. This means after dealing with PRRS, and even with an increase in prices, U.S. producers elected to not expand the herd.
Now heading into 2022, PRRS is already again rearing its ugly head on hog farms across the Midwest, which may lead to additional reductions of supplies. From a global perspective, African Swine Fever continues to also be a potential threat. In the past week, ASF was found in a wild boar in Hong Kong, and also in a wild boar in Italy. It would be detrimental to the U.S. hog herd should it be found and spread in the U.S.
Even without the issue of disease, first quarter hog production in the U.S. is already expected to be down 3.9% from last year, with second quarter hog production also expected to be lower, down 2% from last year.
From a technical chart perspective, continuous monthly hog futures charts posted a bullish key reversal in December. This can be viewed as a technical bottoming signal; however, fresh bullish news is needed to now keep that upward momentum going.
Rice demand swings
If you remember back to the initial market reaction to COVID in early 2020, rice futures screamed higher as consumers raced to the grocery store to buy toilet paper and other grocery staples like rice. Store shelves were emptied out, and prices peaked due to a combination of sudden demand and market euphoria. Since peaking at $23.56 per cwt in June of 2020, rice futures bottomed at $11.21 per cwt just one month later. Over the past year, rice futures have been inching higher with prices most recently near $14.50 per cwt.
A few things in rice have my interest, technically speaking. On a continuous monthly chart, prices posted bullish reversals in both September 2021 and November 2021, signifying that potentially a large price low might be trying to occur, with a potential upside target of closer to the $17.00 per cwt area in the coming months should the fundamentals dictate.
Fundamentals are starting to lean friendlier to rice futures. According to the most recent USDA report, ending stocks are now pegged at 33 million cwt, down 1.5 million cwt from the month prior, and down a whopping 24% from year ago levels. Global ending stocks are starting to slowly trend lower as well due to lower production in Mali and Sri Lanka, while global consumption continues to trend higher at 510 million tons, which according to the USDA, is a record.
And I have a sneaking suspicion that demand for U.S. rice will increase in the coming months by U.S. consumers as grocery bills are up dramatically from year ago levels due to inflation. If the consumer is on a limited budget for groceries, substitutions will need to be made and creative tweaks will be made in the kitchen to accommodate. I feel rice will be the recipient of increased demand due to its overall lower cost, ease in use of cooking, and ability to fill plates of hungry children and families.
Lastly, planted rice acres in the U.S. seem hover between 2.5 and 3 million acres. Converting a field to rice production is a process due to the unique irrigation methods, water management, and levees that are involved in the growing process. Therefore, if demand increases, supply may be slow to follow on an increase simplly due to the nature and extent that encompasses rice production.
Ultimately time will tell, yet rice futures and hog futures may have some serious potential.
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