Weekly Purcell Report

US - Agricultural US Commodity Market Report by Wayne D. Purcell, Agricultural and Applied Economics, Virginia Tech.
calendar icon 10 June 2003
clock icon 3 minute read

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In the lean hog pits, all of the contracts after June have been making new contract highs across recent trading days. The June has a contract high prior to Tuesday's session of $67.675 recorded back on May 20.

We made a new high in Tuesday's session, but I am not at all convinced that this market is going to be capable of closing above that old high and moving up from here. Tuesday's close was $67.475.

I would always sell rallies toward a contract high when it looks like it is the upper portion of the fundamentally based price range for the year, and I would be selling this rally. Buy those short hedges back only if you see two consecutive closes above $67.675 on the June contract.

Cash prices are getting better and will get better as we move through the summer with reduced daily slaughter levels, but up around the $67-$68 level translates to $50-$51 hogs on a live hog basis, and that is very profitable.

It is not as if this emergence of profits is going to prompt a dramatic increase in the breeding herd and give us more hogs by the end of the year, but we will see seasonal increases in daily slaughter levels as we move beyond the summer months.

So, it is time that we started looking at the more distant contracts and thinking about price risk management in the August and December for later this year.

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