Pig outlook: Lean hog prices rebound from June lows

US pork packers have been cutting in the red recently
calendar icon 24 June 2022
clock icon 4 minute read

The pig traders’ perspective: Lean hog futures prices have made a good recovery from the June low, but there are stiff overhead chart resistance levels just above present prices. Fundamentally, after an extended period of positive margins, US pork packers have been cutting in the red recently. HedgersEdge.com estimated pork margins at nearly $30 per head in the red as of mid-week. The negative margins could stall the recent rise in the cash hog market, especially once slaughter supplies start to build during the second half of the year. Still, other cash fundamentals continue to support futures, as the CME lean hog index rose $1.29, as of June 20, to $110.45, the highest level since August.

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

US Senate Ag Committee approves two measures on livestock markets

The Meat Packing Special Investigator Act (S 3870) and Cattle Price Discovery and Transparency Act (S 4030). The special investigator bill would set up a separate office at USDA to investigate competition issues in the U.S. livestock industry. Opponents argue it duplicates efforts already on the books at USDA via the P&SA Act and would increase costs and regulatory burdens on smaller producers. The cattle pricing bill would establish five marketing regions in the continental U.S. and require a specified percentage of cattle be traded via the cash market. The National Cattlemen’s Beef Association says that mandating sales activity could take away other pricing opportunities for producers. Despite Sen. Chuck Grassley (R-Iowa) saying the votes are there for full Senate approval, that outcome is far from assured.

China continues pork buys for state reserves

China will buy another 40,000 MT of frozen pork for state reserves on June 24. Beijing continues to stockpile pork via weekly purchases to boost hog margins.

China’s pork imports plunged in May

China imported 130,000 MT of pork during May, down 10,000 MT (7.1%) from April and 65.7% less than last year. Through the first five months of this year, China’s pork imports at 680,000 MT fell 65.2% compared with the same period last year.

US backs pork group, Farm Bureau in Proposition 12 Supreme Court case

US government filed a brief to the Supreme Court supporting the NPPC and Farm Bureau challenge to California’s animal housing law, Proposition 12. In an amicus brief, Solicitor General Elizabeth Prelogar said California “’has no legitimate interest in protecting’ the welfare of animals located outside the state,” quoting a previous Supreme Court decision. “Voters in pork-producing States must determine what constitutes ‘cruel’ treatment of animals housed in those States — not voters in California,” the brief said, quoting a 1935 Supreme Court decision, Baldwin v. G.A.F. Seelig Inc. Of note, Senate Ag Committee Chair Debbie Stabenow (D-Mich.) previously called on USDA Secretary Tom Vilsack to support California's Proposition 12 before the Supreme Court.

Prelogar’s brief noted the U.S. “takes no position on whether petitioners will ultimately be able to prove that Proposition 12 unduly restricts interstate commerce” under the Supreme Court’s Pike v. Bruce Church Inc. decision. But at this stage, “petitioners have plausibly alleged that Proposition 12 will have substantial adverse impacts on the interstate pork market,” her brief said, urging the Supreme Court to reverse the 9th U.S. Circuit Court of Appeals’ decision to dismiss the ag groups’ challenge, and remand the case to the appeals court. “If petitioners prove those allegations, then those burdens are ‘clearly excessive in relation to’ what petitioners allege to be insubstantial or non-existent ‘local benefits,’” she said.

Background: Farm Bureau and NPPC are challenging the constitutionality of California’s Proposition 12. The state law seeks to ban the sale of pork from hogs that don’t meet the state’s arbitrary production standards, even if the pork was raised on farms outside of California. AFBF and NPPC argue Proposition 12 violates the constitution’s Commerce Clause, which restricts states from regulating commerce outside their borders. The brief states Proposition 12 “will require massive and costly changes across the entire $26-billion-a-year industry. And it inescapably projects California’s policy choices into every other State, a number of which expressly permit their farmers to house sows in ways inconsistent with Proposition 12.”

The Prop 12 case will be heard Oct. 11.

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

August lean hog futures--$105.00 to $112.50, and with a sideways-higher bias

September soybean meal futures--$391.30 to $406.90, and with a sideways-lower bias

December corn futures--$6.50 to $7.00 and a sideways-lower bias

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

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