'Too many hogs' send prices to seven-year lows

04.10.2016

Hog futures plumbed fresh seven-year-lows on Monday, after the release of a bearish US government report on Friday afternoon.

After markets closed on Friday, the US Department of Agriculture hogs and pigs report showed the US hog herd at 70.851m head on September 1.

This is the highest level seen since the launch of the report in 1988.

The herd was up 2.4% year on year, with analyst projections averaging at a 1.2% rise.

December hog futures, the most widely traded contract, reached as low as 43.35 cents a pound on Monday morning, down 0.9% on the day, although they fluctuated both sides of unchanged.

Too many hogs

Friday saw a precipitous decline in livestock futures, as prices for lean hogs fell by some 5%, while live cattle hit limit down.

Trading limits in live cattle and lean hogs were expanded to 4.500 cents for Monday's session, in response to Friday's sell-off.

"Hog futures were the worst investment in commodities last quarter and in the past year," said John Clemmow, at Barclays.

"That's because there are simply too many pigs," he said, adding that "they're so numerous these days that slaughterhouses will have to add shifts and operate on Saturdays in November and December to process them all into food".

And the huge supplies are meeting only tepid demand.

"China, which more than doubled U.S. pork purchases in the first half of the year, has now put the brakes on buying," Mr Clemmow said.

And demand from Mexico is under pressure due to the weaker peso.

Cattle under pressure

Cattle futures are also under pressure, with feeder and live cattle futures finding near-six year lows.

"Cattle are getting pressure from hogs and long speculators caught wrong," said Water Street Solutions.

Hedge funds burned their fingers on cattle futures last week, after raising their net long in live cattle futures over the week to last Tuesday, according to Friday's Commodity Futures Trading Commission commitment of traders report, before a rapid decline.

Funds trimmed their positions in lean hogs by last Tuesday, but were still holding a substantial net long position, which will leave many speculators swallowing losses.

December live cattle futures were down 0.5%, at 99.65 cents a pound.

November feeder cattle were down 0.2% in late-morning deals, at 190.4 cents a pound.

Potential downgrade?

Still, at least one commentator suggested that the USDA's hog numbers may get something a trim by the end of the year.

 "Reliability estimates show a tendency for the September report to overestimate compared to their final estimate," said Steiner Consulting.

"That is the only comforting output in this report to hog producers already faced with the lowest prices in year," Steiner Consulting said.


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