In lean hogs, on a seasonal basis, we have generally tighter supplies from the start of the year into April. After late April, supply takes a more dramatic decline into the year's lows in the summer. That does not mean price goes straight up in this period. Spring is a period where a little shake-up is normally seen. Traders are aware of a slight slump in prices from the minor February or March peak into spring.
Lean hog futures continued their mild rebound. Today marks the seventh day since the Nov. 15 minor low was placed; Though cattle prices did have a sharp drop from spring highs down to summer lows, the general theme since August has been bullish.
It is our belief that this rally in hogs is ending. We may not go right back down but certainly, need to see better news in this market quickly. December live cattle futures came within 15 cents of retesting the September 22 mini-price peak.
Futures traded mixed Monday, lower in the morning but up by the afternoon. The likely reason was more of a gap-filling move on the December than any real change in fundamentals. The December exactly filled the upside gap to 57.75. The type of day, with a lower low than the previous session but also a higher high, is called an Outside Day. The close higher implies slightly higher trade tomorrow morning.
The October contract has risen 5.25 off their lows from the 1st. This is not that unusual. As noted all last week, the market often does not like to the August expire and the next contract out hold such a steep discount to current cash prices. We can argue all we want that this discount is needed, and may, in fact, be too small based on the supply change coming, but that does not matter. From a simple optics perspective, a $20 discount is too much.
Another 20 cent gain was added to wholesale pork today. That extends this year's strong rally just a little further. More important for these short term discussions, it temporarily puts away fears that the top is in. We, and most of the pork trade, certainly do feel this is the right time. The only question is when.
New highs were reached for the July and August lean hog futures on Monday. The trade is still discussing the idea of slackened demand from end users for beef at these higher prices and a little more interest in pork. As we noted a few weeks ago, there is not as much switching between the two than analysts thought years ago but there is something there. It has also been shown in the weekly feature numbers.