Commentary
April Lean Hogs pulled back hard from Tuesday’s surge. The cutout report Tuesday afternoon broke down from the Monday high, with the Belly falling below Friday’s and Monday’s advance. This afternoon was no different with Bellies dropping some more, after moving higher in the morning. It looks like on Monday (at least in my neighbor grocery store) egg prices dropped $2.00 per dozen and everyone was eating eggs for breakfast and had loads of bacon with the eggs. I guess people had too much bacon in one day and their doctors told them to lay off the bacon. So, no bacon on the burgher. Prices collapse… ouch!! But the reality is cutout prices continue to struggle even as it is generally limps higher. Traders are expecting big surges in pork cutouts and aren’t getting them… so, futures rally and pullback. This is the opposite of beef cutouts which continue jump to higher levels, giving traders hope cattle prices will continue to climb. Mind you, cattle futures and cash prices are closer together than hog futures and the hog cash prices. The expectations for surging hog prices are stronger it seems for hog traders than cattle traders. Pork is in short supply worldwide. The US has the cheapest pork around, in my opinion. Our exports are increasing. Yet, pork cutouts and cash are just coasting. Many claim our slaughter levels remain too high and it has put pressure on price… Weights have been declining (except for the weather-related December jump), so production in my opinion isn’t out of control, even with the supposedly higher than expected slaughter. Yet, cutouts and cash are coasting, unlike cattle. Hog slaughter should decline going forward and this has traders looking on the bright side. There is a wide spread between April and the spring and summer months. I think this has helped support April futures in the near term. April opened on weakness. It opened below the key level at 88.325 and made its high at that level. It took out Tuesday’s low with the Wednesday’s low at 86.175. It settled near the low at 86.55. The low was just below the rising 8-DMA now at 86.20. The breakdown took price below support at 87.10. If Hogs take out the 8-DMA, we could test support at 85.325. Support then comes in at the 100-DMA now at 84.775. A rebound above 87.10 could see price revisit resistance at 88.325. Resistance then comes in at 90.40.
The Pork Cutout Index increased and is at 83.41 as of 02/21/2023.
The Lean Hog Index increased and is at 76.76 as of 02/20/2023.
Estimated Slaughter for Wednesday is 428,000, which is below last week’s 483,000 and last year’s 474,000. The estimated total for the week (so far) is 1,389,000, which is below last week’s 1,445,000 and last year’s 1,416,000.
For those interested I hold a weekly grain (with Sean Lusk) and livestock webinar on Thursdays (except holiday weeks) and our next webinar will be on Thursday, February 23, 2023, at 3:00 pm. It is free for anyone who wants to sign up and the link for sign up is below. If you cannot attend live a recording will be sent to your email upon completion of the webinar.
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Ben DiCostanzo
Senior Market Strategist
Walsh Trading, Inc.
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