Making Sense of the Cash Hog Market

( National Pork Board and the Pork Checkoff )

If you are like most producers, trying to make sense of the cash market today is very challenging. With strong domestic demand and the latest reports on exports, one would expect the markets to be reacting and improving over the last month. Instead, we have had significant deterioration in the national average base price, the CME index and in the cutout value. Futures prices, with the exception of the nearby (October), is the only market that is trending stronger and has actually added $6 - $8 per cwt. for most all deferred contracts.

In addition to price, managing basis seems to be the biggest issue producers are facing today. Lifting futures contracts today has basis (if selling on the index), which is $17.36 per head worse than anticipated using the three-year average basis. Generally, we have more price risk than basis risk, but there are those times like the present that make you question your strategy and look for ways to manage that basis risk. In addition, we have December futures trading at $5.00 premium to October.

The activity from China is picking up steam. We have been expecting it for some time and realized we were much too early back in March-April after learning about the cold storage capacity in China and that many of the ASF-infected herds were marketed early and moved into storage.

The last month of actual export shipment data available is July, which was released around September 10. That information shows impressive pork exports to Hong Kong/China with exports of 44,553 metric tons of pork and 24,104 metric tons of pork variety meats. This was a 209% increase in volume over July of 2018. For July, China was our largest volume and value export destination for pork products.

In my opinion this market has been dominated by supply. Last week’s slaughter was estimated at over 2.6 million head for the first time this calendar year. We have big supplies of pigs and trying to find enough labor to harvest and process the volumes has been a challenge for the packers. Since Labor Day, we have harvested big numbers daily and run plants on Saturdays quite hard for this time of year.

Conversations I have with many clients would indicate we have a lot of market-ready hogs and staying current is hard to do with these big harvest numbers, especially concerning that we are still in early fall. Increasing sales of carcasses to China could be a partial solution to labor and harvest volumes, and there seems to be a lot of interest from China. Let’s hope it continues to materialize.

More from Farm Journal's PORK:
Four Challenges U.S. Meat Exporters Should Expect to Face

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