Pork Central Hog Market Thoughts for April 1st 2006

By Al Prosch, Nebraska University Pork Central Coordinator - Expectations that the March Hogs and Pigs Report show modest expansion of the US sow herd (average expectation was about 101%) left the April futures markets trading in a narrow range from $57.00 to $58.00. The report came in almost exactly on expectations.
calendar icon 10 April 2006
clock icon 4 minute read
Al Prosch
Al Prosch

The futures market closed down slightly before the report was issued. The report is neutral to the market and Monday should find futures again responding to cash markets. With plentiful supplies and questionable demand, expect live hog bids to remain under pressure.

The National Net Weighted Average Lean hog price opened the day (March 31st) at $56.42. April futures closed at $57.35. Futures continue to take direction from the cash market. Farther out the June futures closed at $65.27. The June close, off $1.47 from the previous days close, indicates slightly less confidence in prices for this summer.

Hog prices for 2006 have been volatile when compared to the four years of 2002 through 2005 (chart above). Looking at the June futures contract (chart at right), it shows the downward, upward then downward pattern of the cash market. For January, February and March the futures markets have followed the cash trend. The good news for the June contract is that it is trading near the upper channel line of the channel formed in March. If the trade moves above the channel line it will be a positive indicator. However, most of the expectation from this Hog and Pigs Report is built in to the market. Monday’s trade will likely tell whether there is any optimism.

Exports could still spark some optimism. They are strong, and with the problems in other meat exports, should remain so. We will need the export volume to help reduce the impact of increased pork supply.

The uncertain outlook in the poultry complex is another possible cause for optimism. If poultry consumption declines in the US from the impact of the ongoing avian flu issue, pork is the likely beneficiary. But, if poultry prices plummet and US consumers are not fearful of the product, pork sales and profits would likely suffer. This uncertainty may keep futures following cash through out the year. If futures follow cash closely though out the year, it will limit hedging opportunities. As shown in the charts above, June is following the lead of cash markets and in price trading slightly above the four year average.

Current futures values still give an average producer with a breakeven of $40.00 per cwt. (live price) a $5.32 profit per market hog for a marketing year of April 2006 through April 2007. Realistically, this is less than the basis fluctuations and puts producers at breakeven or less for the next year. Profits are likely to exist through summer, but the fall quarter and the first quarter of 2007 could be a problem. Also, the Chicago Mercantile Exchange has proposed increasing the daily trade limit on price movement in the lean hog futures contracts to $3.00 from $2.00. This only needs Commodity Futures Trading Commission approval to take place. This increase in daily limit moves will have an affect on pricing during volatile times.

Last, the crop acreage report that came out today indicated a shift in acres from corn to soybeans. Corn futures were up from a nickel to eight cents, with December 2006 closing at $2.68. Soybean meal futures were down. This may be a time to watch corn prices and soybean meal prices in an effort to keep total feed cost down.

Source: University of Nebraska's Pork Central - April 2006

Sponsored content
© 2000 - 2023 - Global Ag Media. All Rights Reserved | No part of this site may be reproduced without permission.