Pig outlook: Lean hog futures bulls gain power

Analyst Jim Wyckoff shares an update on the US futures market, USDA reports and global pig news
calendar icon 22 July 2022
clock icon 4 minute read

The pig traders’ perspective: Lean hog futures surged to a three-month high this week as the bulls have gained solid power to suggest more price upside in the near term. Prices are now in a steep uptrend on the daily bar chart for August lean hogs. Cash hog market fundamentals are bullish. The CME Lean Hog Index this week climbed to $116.37, as of this writing. Sustained wholesale pork price strength has also played a role in the rally in cash and hog futures. A bit worrisome for the bulls is the latest report from the Bureau of Labor Statistics the said June “all other pork” prices in grocery stores have increased 8.9% annually, with bacon and ham prices rising 11% and 9.1%, respectively, above year-ago levels. Those rising prices may somewhat crimp consumer demand in the coming weeks. However, beef prices remain historically high at the meat counter, to suggest pork will still be the choice for thrifty consumers.

Latest US Department of Agriculture (USDA) reports, and other news

Better US pork export sales in latest week

US pork net sales of 20,600 MT for 2022 were up 13 percent from the previous week, but down 23 percent from the prior 4-week average. Increases were primarily for Mexico (10,500 MT, including decreases of 400 MT), Japan (2,600 MT, including decreases of 200 MT), China (2,500 MT, including decreases of 300 MT), Canada (1,600 MT, including decreases of 400 MT), and Colombia (1,600 MT, including decreases of 100 MT). Exports of 26,700 MT were up 16 percent from the previous week, but down 5 percent from the prior 4-week average. The destinations were primarily to Mexico (11,300 MT), China (4,400 MT), Japan (4,200 MT), South Korea (2,000 MT), and Canada (1,300 MT).

China’s sow herd increases in June

China’s sow herd at the end of June rose for the second consecutive month, reaching 42.8 million head, according to the country’s ag ministry. While that was up 2% from May, it was still down 6.3% from last year. Current live hog production is at a “normal and reasonable” level, an ag ministry official said. “Live hog and pork production will increase steadily in July and August... the supply of large hogs is guaranteed in the second half of the year,” the official noted.

US pork checkoff rate to drop 12.5%

USDA formally proposed reducing the pork checkoff rate from 40 cents to 35 cents per $100 value for live animals, in line with a vote by National Pork Producers Council delegates. Revenue from the checkoff is anticipated to fall $13.5 million. The amount raised for promotion and marketing in 2021 was $103.6 million, a 41% increase from the year before due to a 47% increase in live hog prices. The proposed reduction is seen lowering the domestic assessment by $12.3 million and the importer assessment by $1.2 million. However, the notice said that even with the reduction, total program funds "will have increased significantly above 2020 levels owing to the ongoing increase in price levels, assuming general market conditions of 2021 persist."

Chinese pork imports remain light

China imported 120,000 MT of pork in June, down 10,000 MT (7.7%) from May and 64.2% less than last year. Through the first half of this year, China’s pork imports at 800,000 MT fell 65.1% from the same period last year.

USDA monthly livestock outlook summary

Pork/Hogs: Inventory changes and breeding expectations reported in the June Quarterly Hogs and Pigs suggest modest adjustments in pork production in the second half of 2022 and the first half of 2023. The pork export forecast for the balance of 2022 is reduced due to weak demand in important importing regions and declining competitiveness of U.S. pork in foreign markets, a result of the ongoing appreciation of the U.S. dollar from increasing U.S. interest rates.

Chinese pork production surges

China’s second-quarter pork production climbed to 13.8 MMT, the highest level for the period since at least 2015. China’s first-half pork production jumped 8.2% from year-ago to 29.4 MMT amid an 8.4% increase in slaughter. The country aggressively rebuilt its hog herd following the African swine fever outbreak, but producers starting culling sows later last year amid poor margins. China’s overall hog herd as of June 30 contracted by 1.9% compared to year-ago to 430.67 million head.

The next week’s likely high-low price trading ranges:

August lean hog futures--$111.00 to $117.50, and with a sideways-higher bias

September soybean meal futures--$395.00 to $421.60, and with a sideways bias

December corn futures--$5.50 to $6.00 and a sideways-lower bias

Latest analytical daily charts lean hog, soybean meal and corn futures

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