Hogs Fall Back on Wednesday

Lean hog futures closed down 75 cents to $1.50 across contracts on Wednesday, signaling bearish sentiment despite a modest 73-cent rise in the national average base hog negotiated price to $87.62. This downward pressure is further evidenced by a 30-cent decline in the CME Lean Hog Index to $84.06 and a nearly flat USDA pork cutout value, suggesting a weakening cash market and wholesale demand amidst increased year-over-year hog slaughter volumes.

Analysis

Lean hog futures experienced a notable decline, with contracts settling down between $0.75 and $1.50, reflecting prevailing bearish sentiment in the market. This downward pressure on futures is substantiated by a continued slide in the CME Lean Hog Index, which fell another 30 cents to $84.06, and a stagnant USDA pork cutout value, which edged down a penny to $89.60. While the daily national average base hog price saw a minor increase of 73 cents to $87.62, this appears to be an isolated daily movement against the broader trend of weakening cash and wholesale markets. The fundamental driver for this price weakness is likely increased supply, as the estimated weekly hog slaughter of 1.465 million head is running 7,152 head higher than the same week last year, suggesting supply is currently outpacing demand.

Key Decisions for Investors

• Given the alignment of falling futures, a declining CME Lean Hog Index, and higher year-over-year slaughter volumes, investors should consider that the path of least resistance for hog prices is lower, warranting caution for long positions.
• Monitor the basis between the futures contracts and the CME Lean Hog Index; the current weakness in futures relative to the cash index suggests that cash prices may have further to fall before finding a bottom.
• Pay close attention to upcoming USDA hog slaughter data and pork cutout values, as any sustained increase in slaughter rates or failure of the cutout value to strengthen would reinforce the current bearish fundamentals.