Hogs Look to Monday Trade After Friday Rally

Lean hog futures rallied, with June contracts up $3.02 last week and preliminary open interest increasing by 7,891 contracts on Friday, while the CME Lean Hog Index rose to $94.13 on May 28. Despite a decrease in the national average base hog price to $95.40, pork cutout value increased to $107.22, and managed money speculators increased their net long position to 94,540 contracts, indicating continued bullish sentiment.

Analysis

Lean hog futures are exhibiting significant upward momentum, with June contracts appreciating $3.02 in the preceding week and daily gains across various contracts, such as the Jun 25 Hogs closing at $101.325 (+$1.300), Jul 25 Hogs at $104.925 (+$1.950), and Aug 25 Hogs at $105.025 (+$1.625). This rally is accompanied by increased market participation, evidenced by a 7,891 contract rise in preliminary open interest, and a supportive CME Lean Hog Index, which rose 61 cents to $94.13 on May 28. Despite this strength in the futures market, USDA’s national average base hog negotiated price saw a notable $3.55 decrease to $95.40. Conversely, the USDA’s FOB plant pork cutout value climbed $2.60 to $107.22, signaling strong underlying demand for pork products, though the ham primal registered a decline. International trade dynamics show export sales for the week of May 22 at 30,490 MT, down from the prior week, yet shipments rose to a 6-week high of 28,893 MT, with Mexico as a primary partner. Underscoring the bullish sentiment, large managed money speculators augmented their net long positions by 2,796 contracts to 94,540 contracts as of May 27th, while federally inspected hog slaughter remained stable year-over-year at 2.163 million head.

Key Decisions for Investors

• Given the strong rally in lean hog futures, increased speculative net long positions, and rising pork cutout values, investors might consider maintaining or cautiously increasing long exposure, particularly for near to mid-term contracts like July and August 2025 which show significant upward momentum.
• Investors should closely monitor the divergence between the rallying futures market and the recent sharp drop in the national average base hog negotiated price, as a sustained decline in cash prices could eventually pressure futures.
• Monitoring weekly export sales and shipment data, especially for key markets like Mexico and South Korea, will be crucial for gauging sustained international demand, which is a key pillar supporting current price levels.