Better Pork - August 2016

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Better pork August 2016 37
MOE’SMARkET MINUTE
According to the United States
Department of Agriculture,
China’s pork import growth
could last into 2017. U.S. pork ex-
ports to China/Hong Kong doubled
in April to 74 million pounds. Chi-
na’s own pork producers continue to
struggle to meet domestic demand as
environmental restrictions continue
to hamper China’s pork industry
expansion. Chinese prices for feeder
pigs and live slaughter pigs do not
appear to have peaked. Despite the
rally of the past 15 months, the price
of Chinese 40-pound feeder pigs
began June at the equivalent of $145,
more than twice that of a year ago,
according to official Chinese data.
The price of fattened hogs, at about
$143 per hundredweight, was up by
some 35 per cent year on year.
Strong Chinese demand has
helped support CME U.S. lean hog
futures with the 2016 August summer
month trading to new highs above
$90/cwt on June 15, 2016. This June
price was up by 10.7 per cent over
the previous month on speculation
that export volumes will continue to
gain as China/Hong Kong expand
their purchases of U.S. pork. USDA
forecasts that China’s import of U.S.
pork will be up 7.4 per cent in the
second half of 2016. Futures are
starting to price in a very explosive
export demand outlook, as they
did in 2004 when October futures
traded even higher than the summer
seasonal highs.
The good news for hog futures
is that the prospect of a continued
shortfall in Chinese pork produc-
tion implies strong import demand
is likely to persist, at least through
this year. If it’s better than expected
we could see a further reduction in
domestic disappearance of one to
two per cent. The overall trend also
suggests deferred hog futures that
normally fall in the winter may not
fall as much on increased supplies.
A relatively low U.S. dollar is a
tailwind for U.S. pork exports, making
these exports globally competitive,
vis-a-vis the European Union. In
the United States., pork is competi-
tively priced for the grilling season,
while beef remains high versus other
competing meats. This recent rally in
hog futures could be demand driven
as suggested by the high hog slaughter
numbers, and any supply-side issues
will only amplify the better-than-ex-
pected domestic and export demand.
U.S. pork exports will remain a
critical driver for hog futures for the
remainder of 2016 and 2017. The
hog market is holding a much larger
premium to the cash than normal
and may have already priced in
much stronger-than-normal China
demand near-term. In mid-June,
August hog futures rose to new
contract highs — a convincing sign
of bullish confidence regarding the
potential for higher prices over the
short term. The June heat wave
in the United States could have
dropped hog weights faster than
expected and spark another rally
higher. Tightening hog numbers are
supporting cash hogs, as are a num-
ber of other indicators. Keep an eye
on the cut-out, as it needs to continue
rising to support higher hog futures.
Cash is king! BP
Maurizio “Moe” Agostino is chief commodity strate-
gist with Risk Management. Abhinesh
Gopal is a commodity research analyst with Farms.
com Risk Management.
Risk Management is a member of the
group of companies. Visit RiskManagement.Farms.
com for more information.
Chinese import growth shapes hog futures
Expect strong market demand for pork to continue well into the fall, predict
market analysts.
by MOE AGOSTINO and ABHINESH GOPAL
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PORK DAILY CUT-OUT 2011-2016
2016
2015
2014
2013
2012
2011
04-Jan -11-Jan -18-Jan -25-Jan -01-Feb -08-Feb -15-Feb -22-Feb -29-Feb -07-Mar -14-Mar -21-Mar -28-Mar -04-Apr -11-Apr -18-Apr -25-Apr -02-May -09-May -16-May -23-May -30-May -06-Jun -13-Jun -20-Jun -27-Jun -04-Jul -11-Jul -08-Jul -25-Jul -01-Aug -08-Aug -15-Aug -22-Aug -29-Aug -05-Sep -22-Sep -19-Sep -26-Sep -03-Oct -10-Oct -17-Oct -24-Oct -31-Oct -07-Nov -14-Nov -21-Nov -28-Nov -05-Dec -12-Dec -19-Dec -26-Dec -
Source: USDA