Upcoming seasonal bias in hogs could be key

Has the buying started?

Hog, livestock, pig Hog, livestock, pig

Hogs: We have talked about this seasonal September rally in hogs for a few weeks now. There is a clear phenomenon in the pork industry to have a September bounce as retailers procure meat for October, which is National Pork Month. This gives us a slight bullish bias in what is generally a clear downtrend from summer deep into winter.

The average bottom for the lean hog index, the measure of cash hog prices that futures are settled against, is on Sept. 13. The average peak of this short-term bounce comes on Oct. 1. Every year of the history of the lean hog index, in place since 1996, this period has had some type of bounce. Indeed, 2002 and 2003 had extraordinary gains in September.

The 15-year average rally, from each year’s particular September low, is 6.8%. This even excludes 2002 and 2003. We suggest that the cash hog low which was recently put in place, still has some room to run…Rich Nelson

Cattle: The average guess, among 11 analysts, is to see August placements -6%, August marketings -1.6% and Sept. 1 cattle on feed -0.1%. These numbers are compared with year-ago levels. Allendale is right in there with similar numbers of -7.0%, -1.1% and -0.4%, respectively.

The bottom line here is the past three months of lower placements will transition feedlot supplies to smaller numbers (compared with last year). Many clients have been asking us about our price outlooks for fall, winter and spring numbers. At a minimum, we see October at 126.00, December at 128.00, February at 136,00 and April at 138.00. These are minimum expectations.

The high for the April 2012 contract this year was 131.50. Given that we will have a much tighter supply picture, and a slight increase in demand, we don’t see any problem with our generally bullish price outlooks…Rich Nelson

About the Author
Rich Nelson

Rich Nelson is Director of Research at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.

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