Lean Hog Fundamental Support
Yesterday's kill at 292,000 head cut a little deeper than our 312,000 estimate. It appears there was another couple of plants on the list that was not in the original downtime plans. We would not call that a real driver of yesterday's strong summer futures trading though. We would not call yesterday's trade a reaction to Friday's Hogs and Pigs report either. That report was actually bearish the front months and not bullish until the December and February contracts.
As noted in the afternoon meeting with the brokers the overall herd size came in as expected at 0.4% over last year (trade expectation +0.3%). Of that amount Kept for Marketings was neutral at 0.4% over last year (expected +0.3%). The weight group data was interesting. The +180 lb group of hogs as of March 1 determines slaughter from March 1 - mid-April. That group was found to be right on the trade expectation of +0.2% year/year.
The next weight group ahead, the 120 - 179 lb numbers on March 1, make up the kill from mid-April through May. They were seen at 1.2% over last year, over the trade expectation of no change. The next group, 50 - 119 lbs, were +0.8% compared with the expectation of +0.1%. The weight group that hits from mid-September through October, under 50 lbs on March 1, was bullish at -0.4% compared with the trade expectation of +0.8%. The report was clearly bearish the April and summer contracts and moderately bullish the October.
The other segment of the total hog herd, Kept for Breeding, was smaller than expected at slightly under last year. That was under the trade expectation of +0.6%. Farrowing intentions for the two quarters up ahead, Mar - May and Jun - Aug showed a -0.5% and -3.5% year/year change. This will be slightly bullish the Sep - Nov slaughter period and pretty bullish the Dec - Feb time frame.
We caution against thinking that these June - August intended farrowings will actually be that small. Producers have now switched over to profits and that will increase even more into summer. The bottom line of our discussion point here is that the Hogs and Pigs will probably not be a market moving issue.
Instead, we would rather put yesterday's odd futures trade as a reaction to the odd Thursday's action. For pricing these futures are right back where much of the market was over the past two weeks. Our price outlooks are unchanged for the upfront period, $70 expiration for the April and $78 for the June.