Cash hogs vs. futures price, what will give?

Published on: 16:28PM Aug 27, 2012

 Hogs closed higher today on moderate volume.  The cash markets were weaker across the board as well as the pork cutout.  As you can see in the graph below, the amount of time the cutout has spent below $86.32 is around 28.8% of the time in the last 2 years and around 64.6% of the time in the 5 year.

Cutout Percentiles

To see a more extensive set of charts and figures click here


The only issue I see with the 2 year history is that the seasonal tendency of the cutout has us moving lower for the foreseeable future.  With the large cold storage stocks that we have and the amount pork being produced and Labor Day just around the corner, I would tend to agree that we should continue to see pressure.

Pork meat production is up 2% over last year on an YTD basis.  Last week we produced 7.2% more pork than we did during the same period last year and 4.5% more than last week.   More production, rather large stocks and seasonal weakness doesn’t provide a good nearby outlook for the hog market.

The one thing we do have working on our behalf is the basis levels are extraordinary right now and would suggest that either the cash market has to drop or the October 2012 futures are very undervalued.  I’m of the opinion that we have cash too high at the moment.

I’m not a big believer that the Oct ’12 hog contract falls out of bed either but I do think it will gain on the Dec ’12 contract.  I believe the Dec ’12 hog contract will be the short side of bear spreads as traders look for a safe way to play the long side of the 2013 market.  This is just my opinion.

Hog Index Seasaonl

To see a more extensive set of charts and figures click here


When you step back and look at all of the seasonal tendencies the pork cutout has along with the hog index, it doesn’t paint a very pretty picture for the 4th quarter of 2012.  Things currently look better in the 2013 timeframe from May forward but could still use some additional profit.  The cash hog market is probably going to get it the worst, as for the futures market, I think we could see one more leg down before finding a bottom in the 4th quarter.

If you need hard to find, fundamental and seasonal information for the pork industry, click here to get a sample of our Daily Hog Report.

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