Hog futures have been trading in a sideways trading pattern since late October. The theme hasn’t changed. Thanks to strong Chinese demand after African swine fever struck that nation’s herd in 2019/20, nearly 1 out of 4 hogs produced in this country have been made for export. And so, thanks to strong export demand, supplies of U.S. hogs have been plentiful to meet that demand. This increase in production keeps futures prices in check.
And now we sit at a cross roads.
The futures market is well aware that the extremely strong export demand seen in 2020 may be reduced going into 2021 due to the fact that the Chinese hog herd has been rebuilding. Because of this, hog futures have been holding back on any price rally even though export sales right into the end of 2020 have been phenomenal.
Export sales for the recent week were 39,930 tonnes for 2020 and 44,284 for 2021 for a total of 84,214. Sharply higher from the previous week and the highest since November of 2019. (The four week average was 31,274.) China was the largest buyer at 37,761 tonnes followed by Mexico at 23,525 and Japan at 10,207. Cumulative sales for 2020 have reached an astounding 2.081 million tonnes versus the five year average of 1.309 million!
Supply is plentiful!
Pork production for the week ending December 5th was also higher and hit a new record at 612.4 million pounds, up from 511.3 the previous week and 600.5 a year ago. Today’s Hog and Pigs report was in line with estimates. All hogs as of December 1st came in at 99% which was right in line with the average guess. Kept for breeding was slightly supportive at 97% versus the average guess of 98.1. Kept for marketing was neutral, and in line with the pre-report estimate of 99%
Lean hog futures were higher for the week with February up $2.05, April up $1.38 and June up $1.38. However, prices are still range bound overall. If export demand can continue into the New Year at the pace it has been at recently, we feel demand news would NOT be priced into the market, and would be a supportive price factor heading into 2021. Yet, the industry is well aware of the record production for U.S. pork. That production factor will likely drag on any significant price rally. Barring any surprise, a continued sideways trading pattern seems likely in the weeks ahead.
Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm and [email protected]
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