Hogs have been among the rare bull markets in agriculture for the past five months, but some indicators suggest that strength is waning, says Craig VanDyke, Top Third Ag Marketing.
“With cheap feed prices here, my concern for summer hogs is the charts are finally starting to look shaky,” VanDyke tells “AgDay” host Clinton Griffiths on the Agribusiness Update. “Cash is not as robust, and product movement is not as robust, as what we need to be. Foreign demand is there, yes, but Chinese demand has not been as robust as what we all thought two or three quarters ago.”
That doesn’t mean profit opportunities have disappeared for producers. Rather, caution is appropriate.
“There’s profit in these hogs here,” VanDyke points out. “Along with hedging pressure, we’ve seen open interest climb up to 14-month highs most recently. The run in summer months is also attributed to cash flow. When those cash flows start to move, that door is narrow. That door is narrow when they start to exit and we have fatter hogs. Potentially, look out below.”
The position of the cash market, coupled with summer hog premiums, suggests pork producers could begin feeding hogs to heavier weights.
“It’s an incentive for guys to feed hogs fatter, to push hogs further down the road,” VanDyke says. “We’ve seen that problem before, not that long ago.”
Click the play button below to watch the complete “AgDay” interview with VanDyke.
