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Pig outlook: Lean hog futures see normal, healthy consolidation this week

23 October 2020, at 1:09am

Read the latest updates on the global hog market from livestock analyst Jim Wyckoff.

The pig traders’ perspective: Lean hog futures have backed down from early-week highs, but prices remain in a strong uptrend and the charts are still fully bullish—suggesting the path of least resistance for prices remains sideways to higher. The strong CME Lean Hog Index and its premium to lean hog futures suggests futures prices can rise still more. Thursday afternoon, USDA was set to release its monthly Cold Storage Report. Over the past five years, USDA has reported an average build in frozen pork stocks of 15.7 million lbs. from Aug. 31 to Sept. 30. Tensions with China are back on the rise and that could negatively impact US pork exports to China in the coming months. The US State Department approved the sale of arms to Taiwan worth $1.8 billion, including missiles and artillery. The weapons will strengthen Taiwan’s defense capabilities in the face of an increasingly assertive China, which claims the island as its own. China’s foreign ministry accused the US of interfering in its affairs and warned of a “legitimate and necessary response.”

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

US pork export sales slide again in latest week

The weekly USDA export sales report released Thursday morning showed U.S. pork net sales of 26,800 MT reported for 2020 that were unchanged from the previous week, but down 35 percent from the prior 4-week average. Increases primarily for Mexico (13,800 MT, including decreases of 800 MT), Japan (4,900 MT, including decreases of 200 MT), China (1,800 MT, including decreases of 1,500 MT), South Korea (1,500 MT, including decreases of 500 MT), and Colombia (1,000 MT), were offset by reductions for Vietnam (100 MT). For 2021, net sales of 800 MT were primarily for New Zealand (400 MT), Australia (300 MT), and Mexico (100 MT). Exports of 36,600 MT were up 2 percent from the previous week and 4 percent from the prior 4-week average. The destinations were primarily to China (12,500 MT), Mexico (11,100 MT), Japan (4,300 MT), Canada (2,500 MT), and South Korea (1,500 MT).

US beef net sales of 21,700 MT reported for 2020 were up 62 percent from the previous week and 13 percent from the prior 4-week average. Increases primarily for South Korea (5,400 MT, including decreases of 400 MT), China (3,700 MT), Japan (3,600 MT, including decreases of 600 MT), Mexico (2,800 MT), and Hong Kong (2,600 MT, including decreases of 200 MT), were offset by reductions for Chile (100 MT). For 2021, net sales of 2,600 MT resulting in increases for Japan (1,400 MT) and South Korea (1,300 MT), were offset by reductions for Hong Kong (200 MT). Exports of 17,800 MT were up 10 percent from the previous week and 6 percent from the prior 4-week average. The destinations were primarily to Japan (4,500 MT), South Korea (4,200 MT), China (2,000 MT), Mexico (1,600 MT), and Hong Kong (1,500 MT).

China pork industry recovery in "key period"

China’s agriculture ministry held a videoconference this month, where provincial and local officials were admonished not to slack off on implementing hog production support measures as the industry's recovery enters a "key period." Beijing officials explicitly ordered both provincial and local leaders to take seriously their responsibility to expand pork supplies, an indication that engineering a rebound in pork output remains a top "political task" after a year of shrunken pork supplies and record-high prices, reports said.

On October 15, China’s ag ministry said hog production capacity had staged a steady recovery during the third quarter of 2020. Officials praised the smooth operation of the market during the mid-Autumn festival and National Day holidays. Officials predicted a Q4 payoff in expanded pork supply after 11 months of increases in sow inventories with stable and declining pork prices.

National Bureau of Statistics data show that China's average hog price started falling in August 2020. The early October price happened to be about the same as a year earlier, but a year ago prices were climbing rapidly toward a record peak late in October 2019. During October 2020 the hog price is still more than double the level in 2017 and 2018. Last week's agriculture ministry press conference said it is very unlikely pork prices will reach the peak that prevailed in late October last year.

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

December lean hog futures--$66.00 to $72.80, and with a sideways-higher bias

December soybean meal futures--$375.00 to $400.00, and with a sideways-higher bias

December corn futures--$4.00 to $4.20, and a sideways-higher bias

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