March 30, 2009

Market analysts and floor traders foresee a neutral Chicago Mercantile Exchange lean hog reaction on this week's US government's quarterly hog report results that were nearly on target with analysts' estimates.

The figure for all hogs and pigs as of March 1 was put at 97.0 percent compared with analysts' average forecast of 96.9 percent and ranged from 96.1 percent to 98.5 percent.

USDA pegged hogs kept for breeding at 97.0 percent compared with the average of analysts' prediction of 97.9 percent and their projected range of 97.0 percent to 98.5 percent.

The federal government put hogs kept for marketing at 97.0 percent compared with the average estimate at 96.8 percent, ranging from 95.9 percent to 98.6 percent.

Traders and analysts for the most part were reluctant to provide point calls for Monday's CME hog open based on Friday's hog survey due to other influential market issues, such as the stock market and cash hog prices, possibly coming into play.

"We've gotten so used to trading hogs and cattle based on outside markets like the Dow that when we get a report like this, guys will look elsewhere for direction," a long-time livestock trader said.

Ron Plain, agricultural economist with the University of Missouri, said the hog report offered "no real surprises." He said, however, that the data implies that there are a few more market hogs than expected which might weigh on front hog contracts.

By the same token, Plain said that the lower-than-anticipated farrowing intentions might be seen as mildly positive for deferred hog futures.

Plain also points out that the 97 percent breeding herd result suggests that producers have not yet become optimistic enough about a potential turnaround in the hog cycle or corn being down from summer highs to expand production.

Erica Rosa, an agricultural economist with the Livestock Marketing Information Centre, said Friday's hog and pig data outcome was nearly in line with pre-report estimates. Nonetheless, she found the 3% decline in the breeding, total inventory and marketing results somewhat supportive.

"It confirms what we've been discussing over the past month or so that it seems as if the US hog industry is in somewhat of a holding pattern as opposed to an expansion or contraction phase," Rosa said. She believes hog producers in the coming weeks and months will be monitoring feed costs and how well the economy fares given the tight credit situation.