(Heavy) pigs get slaughtered (soon?)

October 7, 2016 10:14AM CDT

Last Friday’s USDA Hog and Pig report showed numbers that came in at or above expectations. Here are the numbers from the actual USDA report:

United States inventory of all hogs and pigs on September 1, 2016 was 70.9 million head. This was up 2 percent from September 1, 2015, and up 4 percent from June 1, 2016.

Breeding inventory, at 6.02 million head, was up 1 percent from last year, and up 1 percent from the previous quarter.

Market hog inventory, at 64.8 million head, was up 3 percent from last year, and up 4 percent from last quarter.

The June-August 2016 pig crop, at 32.0 million head, was up 2 percent from 2015.

This week the Wall St. Journal had this to say “The U.S. Agriculture Department on Friday pegged the size of the nation’s hog and pig herd on Sept. 1 at 70.851 million head, the largest on record for that time of year.”  The article went on to highlight the parade of meat heading for market from chicken producers and increasing output from beef producers as well.

A number that caught my eye in the report was the animals at 180 pounds and higher coming at 104.1. This speaks to producers holding onto animals waiting for prices to jump as feed costs are relatively low. That meat has to come to market sooner rather than later. Last Friday’s pre-report drop, both the December and February contracts traded almost 3 full points lower, may have been trying to bake this idea of increased supplies into the price we see on the chart.  Futures are well discount to the cash market. I see a CME cash index print of 54.85 at the time of this writing while December Lean Hog futures closed at 42.450 and Feb Lean Hog closed at 49.30.  Decent volume in both contracts on the move lower earlier this week has not helped those who are trying to bottom pick in here.  My ‘feeling’ is this market may be getting cheap but I cannot find any evidence on the chart to back that up.

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