June 29, 2009

Market analysts and floor traders foresee a neutral Chicago Mercantile Exchange lean hog reaction Monday to Friday's US government quarterly hog report.

 

The figure for all hogs and pigs as of June 1 was put at 98.0 percent, compared with analysts' average forecast of 98.1 percent and a range of 96.7 percent to 99.0 percent.

 

The US Department of Agriculture pegged "kept for breeding" hogs at 97.0 percent, compared with analysts' average prediction of 97.6 percent and range of 96.2 percent to 98.5 percent.

 

The federal government put hogs kept for marketing at 98.0 percent, compared with the average estimate of 98.0 percent and range of 96.7 percent to 99.1 percent.

 

Traders and analysts were reluctant to offer point calls for CME hogs' open Monday based on Friday's hog survey results, which observers agreed were nearly in line with pre-report forecasts.

 

But, while some felt that futures' bearish tone prior to the report's release may have absorbed any negative implication following the release, others fear that the aggressive pace of liquidation may continue to weigh on cash hog prices, pork cutouts and futures moving forward.

 

Ron Plain, agriculture economist with the University of Missouri, said the report offered few surprises. The smaller breeding herd figure, he said, may be seen as somewhat positive, but the pig crop at 98.0 percent is not quite as small as expected and might be viewed as a tad bearish.

 

The month of June has been "dismal" for lean hogs because of slaughters running well above expectations, cutouts taking a beating due to reduced demand and consistently bearish hog prices, said Plain.

 

"We had so much bad news and things have been so gloomy, that you look at the report numbers and they're not worse than expected," said Plain. "One could make the case that the market may react a little positively from that standpoint."

 

Bob Brown, an independent market analyst, said producers did a good job of drawing the breeding herd down by 2.7 percent but raised pigs per litter by 2.4 percent which would almost be a wash.

 

With the exception of heavy-weight market hogs, which are pretty much accounted for slaughter-wise, all the farrowings and pig crop information was up but still within 1 percent, Plain said.

 

"But, the fact that we could be over a year ago in anything is pretty amazing given what the industry went through in 2008 in terms of profit losses and high corn prices," said Brown.

 

The June total hog inventory was down about 1.16 million head, and the reduction in feeder pigs during the same period from Canada was about 407,000 head, said Brown. So, he said, the industry only took about 700,000 head out of US market hog inventories compared with a year ago.

 

Breeding herd numbers are down slightly from the average guess, which is the direction the industry needs to be heading, said Brown. But, he said, the overall numbers "go nowhere" because of the breeding herd reductions versus increased pigs per litter being nearly the same.

 

"I feel bearish because we wanted good news in terms of lower numbers, and they weren't there," said Brown. "However, there is a chance that the pullback in hog futures prior to the report might be able to overcome the data's results."