Monday was delightful for anyone raising and selling hogs.
The United States Department of Agriculture found that the the U.S. breeding herd was down 3.9 percent – far more than the 2.6 percent average guess of analysts before the Hogs and Pigs Report was released.
Prices surged in response. That’s good. It’s about time the U.S. herd shrunk significantly, like ours up here in the Suffering White North. Here’s what has happened in the Chicago lean hog futures market:
I’m going to show you the last few days a bit bigger:
You’d have whiplash right now if you were that market. The market had been selling off sharply as analysts got bearish pre-report, then did moonshots higher when USDA revealed what it had found.
The funny thing is that it’s not an extreme finding. As Tyler Fulton of Manitoba Pork Marketing Coop told me a few minutes ago, it wasn’t a finding far outside the expectations. But it was a significant difference, and on the side that the market was betting against. So people who’d gone short stormed back in to cover and sentiment snapped its fluffly little head back away from looking down to looking up.
And that’s what’s good about this finding. It bodes well for hog prices for the next six or eight months, since all the pigs that will come to market have to come out of this suddenly smaller herd. You can’t just add a few hundred thousand piglets overnight. You have to retain sows and gilts, breed them and get the piglets growing. These USDA numbers mean it’ll be quite a while before higher prices – if this rally continues – drag more females into the herd.
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I hope this is the kick in the pants the hog market needs to begin a nice spring and summer rally. That’s usually what you get – a spring and summer rally. That was happening last year when I went down to Des Moines for the World Pork Expo, but collapsed during the Expo week. To an already suffering industry, it was a cold, wet blanket of woe that spoiled the early June mood there in Iowa. That snuffing out of the rally is what has caused so many producers to leave the industry. If, as most predicted, the spring-summer rally came on time, it would allow long-suffering producers to stop the red-ink slide. It’s premature death caused many to give up hope and caused the explosion of pain in Canada, where conditions were much worse.
The past few days of lean hog prices could just be a short term correction, but Fulton hopes that it is a pivot point: with the smaller sow herd a medium term reality, the market may begin to fear for supply.
This is the kind of news that sometimes breaks a market’s psychology and reorients it to a new direction. Let’s hope that’s what we’re seeing on the charts above.
