First three-day gain for pork since summer

November 29, 2016 12:25 PM


Lean Hog Fundamental Support

Monday's higher finish in wholesale pork makes it three days in a row of gains. We have not had a three-day gain since Aug. 11 to 13. New highs for the uptrend in futures were reached again Monday. Our biggest driver is the seasonal. Depending on the contract, Nov. 30 or Dec. 1 is the peak. They all point to lower trade until Dec. 17. The year's biggest kill is still in front of us, around the second week of December.

For now, we will play this bounce as nothing more than a seasonal bump followed by a sharp break right back down. On a fundamental basis, supply/demand, we cannot justify a move past $48 per pound on the December ($55 on the February). Let's see if this market can get up to $58 or $60 per pound and work on sales at that price. Don't forget that later on, in December and January, the market suddenly remembers "financially stressed consumers." Hedgers are encouraged not to lift hedges. Our next speculative trade may be a sell next week.

Live Cattle Fundamental Support

Cattle futures broke down and filled that gap left from Friday's trade. The gap is still there on the feeder cattle charts. The weekly count of showlists, the number of cattle ready for packers this week, showed a 12,000 head increase over last week's numbers. That may cool some of the enthusiasm this week.

Last week's supply ran quite a bit more than expected. USDA claims that Saturday's run totaled 88,000 head was massively over the private trade estimates. It is in fact anywhere from 20,000 - 40,000 head over what the trade was thinking. Last week's kill came to a 20% increase over last year's Thanksgiving week. The previous four weeks have run 10% over last year.

Last week's cash trade came to $111.59 per pound on USDA's summary report today. That was exactly $3 over last week. The market remains excited about short term increases in retail interest as well as the prospect for a long term increase next year due to infrastructure spending.

The OECD raised their estimate of US GDP for 2017 was raised from 2.1% to 2.3%. This was made with the expectation of higher U.S. government spending and lower taxes.

We fully agree that some of the market's fundamental assumptions have changed and that higher prices are warranted. Beyond the 116.48 Head & Shoulders upside objective we cannot project a further run.


About the Author

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.