When is a Trend Not a Trend?

ANALYSIS - US hog prices have been in the news a lot this year. Record high prices have been seen, (some) US farmers have seen very large hikes in profit margins, and commentators and market analysts far and wide have made predictions about where the market is going, writes Whole Hog editor and market analyst John Strak.
calendar icon 9 September 2014
clock icon 3 minute read

Sometimes, however, it’s better to recognise that prediction is a difficult job and that the factors driving the market are themselves unpredictable.

The outbreak and the extent of animal disease is a good example of unpredictability and if the CIA cannot predict what President Putin will do next then how can a commodity analyst calculate the probability of trade disruption (and price impacts) arising from Russian tank movements in and around the Urals?

The chart shown here illustrates the problem and shows how the daily hog price in the USA has behaved in the last three years.

The 2012 and 2013 data series follow a similar seasonal pattern and also hint at the lack of any significant trend in the data.

However, as PEDv hit the US herd in late 2013 and early 2014 the impact on prices is striking: the 2014 price series is a serious roller coaster ride and one can only feel sympathy for any pig producer (or processor) who has had to deal with this sort of volatility on a daily basis in 2014.

Week by week they will have been asking – is this is a new trend, should I expect prices to keep rising, etc? The prudent answer, of course, is that we don’t know how to respond to these queries.

Less prudently, I would venture that the most likely position is that it was not a change in the underlying trend.

We will not know for certain until the end of 2014 if a new trend in US hog prices have been established (or even later) and, in my view, analysts would be well advised to resist the temptation to declare a new trend for this year when the metrics of the market drivers (in this case animal disease and geopolitics) are so unclear.

Presenting a picture of the daily movement of US hog prices (as shown in my chart) is about all an analyst can sensibly offer.

It doesn’t answer the trend question (is this a new trend?) but it does help explain why we can’t answer that question.

john strak hog prices

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