Hogs Look to Close out Week Following Thursday Losses

Lean hog futures declined Thursday, with most contracts down between 35 and 90 cents, while the CME Lean Hog Index increased to $92.34 on May 20. Weekly Export Sales reached a 7-week high of 37,391 MT, driven by demand from Mexico and China, although the USDA's pork cutout value saw a slight increase to $100.27 despite lower primal values. Hog slaughter estimates totaled 1.928 million head for the week, surpassing both the previous week and the same week last year.

Analysis

Lean hog futures experienced a decline on Thursday, with most contracts registering losses between 35 and 90 cents; notably, Jun 25 Hogs settled at $98.700, a decrease of $0.825. This downturn in the futures market occurred despite a modest gain in the CME Lean Hog Index, which advanced by 49 cents to $92.34 on May 20. In the physical market, the USDA’s national average base hog negotiated price saw a marginal decrease to $95.29, contrasting with a 23-cent rise in the FOB plant pork cutout value to $100.27, even as butt, rib, and ham primal values softened. A key positive development was the strength in export activity, evidenced by weekly export sales hitting a 7-week high of 37,391 metric tons, with Mexico and China as principal buyers, and shipments reaching their highest level in five weeks at 28,547 metric tons. Simultaneously, federally inspected hog slaughter figures indicated increased supply, with the weekly total at 1.928 million head, up 14,000 head week-over-week and 10,006 head year-over-year. The market anticipates a closure for Memorial Day, with government reports consequently delayed, potentially impacting trading dynamics upon reopening.

Key Decisions for Investors

• Investors should closely monitor the divergence between declining futures prices and the more resilient CME Lean Hog Index and pork cutout values, as this could signal shifts in market sentiment versus underlying physical demand.
• The strong export sales, particularly to Mexico and China, represent a bullish demand signal, however, this must be carefully weighed against the consistently higher hog slaughter numbers which suggest ample supply that could temper price rallies.
• Consider the upcoming holiday-shortened trading week and the delay in government reports, which may lead to increased volatility or price adjustments when normal trading resumes on Tuesday; positions should be managed accordingly.