US - Cash hogs and futures have held up remarkably well in the face of some of the largest weekly slaughters in history, writes Allan Bentley, USA Sales.
Weights for the last week of 2016 were 4 lbs. below last year. That tells me the industry did a great job chewing through the hogs in a timely fashion and pulled hogs forward so as not to get too backed up during the holidays.
Of course, as Jim Long likes to remind us, when Packers are making $50 per head they have quite an incentive to kill as many as they can.
We have not only held steady prices, but both cash hogs and hog futures have increased in value. Cash hogs have gained $9.00/ cwt in the last 6 weeks. February futures have gained about $12.00 in that same period. That means the basis is a little wider than history says it should be. It is never wise to go against a strong uptrend, especially when dealing with record supply. Cash hogs will catch up to February futures. Packers have plenty of margin to actively bid against each other.
Someone asked me if we could be setting some counter seasonal highs in the futures? After cash and futures have performed so well with record supply, the past 6 weeks, I see no indicators that will happen.
As supply drifts lower and demand remains at these levels, we should rally cash and futures into May. As many have said, and I will repeat, the difference in what the producer is getting paid for his hogs and what the cut out value is, will not stay this wide for an extended period of time.
I talk a lot about basis in the cash to futures price. There are times it is inverted and times that basis is way too wide, neither stays that way for long. The same can be said for the cut out value to cash hog prices. We are at record wide levels and that also will more than likely change soon.
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