Weekly Purcell Report

by 5m Editor
19 May 2004, at 12:00am

US - Agricultural US Commodity Market Report by Wayne D. Purcell, Agricultural and Applied Economics, Virginia Tech.

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I will look back on this period in the hog market and recognize that I underestimated the benefits I have been discussing coming from increased demand for pork with trade channels for U.S. beef being closed to countries like Japan and South Korea.

We are headed into the time of year in which we would normally get seasonal strength, but the weighted average price on a carcass basis for lean hogs at the national level in Monday's market was $81.79.

That is a hugely profitable price level that translates to something in the low $60s if you mentally convert to a live hog basis. We know this will start to stimulate some expansion in the breeding herd and some supply response to these higher prices, but that cannot happen overnight.

Any holding of gilts will just push these prices still higher because of reduced slaughter. The June lean hog futures are around $75 in Tuesday's session, and this contract recorded a new price high on May 12 at $77.40.

I had actually been recommending moving ahead to forward price these May and June hogs on a rally to the old April 12 contract high at $76.47. That is still certainly a viable position in terms of short hedges. I think it will be the July and later contracts that probably reach still farther to the upside.

I would hold those short hedges in the June hogs and probably extend my price protection if this market can get pulled up toward the recent contract high of $77.40, since I don't see substantial upside from there.

5m Editor