HOGS: June Hogs Holding Much Higher than Normal Premium; Why?
April hogs closed moderately higher on the session yesterday after choppy and two-sided trade early. June hogs closed lower. Choppy activity in the pork product markets, plus the huge premium of June futures to the cash market are seen as short-term negative forces. Weights remain a little higher than expected, which is also a bearish force. The USDA pork cutout, released after the close yesterday, came in at $106.02, up $1.84 from Wednesday and up from $103.73 the previous week. This is the highest the cutout has been since March 1. The CME Lean Hog Index as of March 22 was $101.21, down from $101.77 the previous session but up from $100.41 a week prior. This leaves June hogs trading at a premium of 21.25 to the cash market versus a 5-year average premium of 12.60. In other words, if June hogs were following the five-year average basis, the market would be trading down at 113.80. The market is pricing in a much stronger than normal cash market rally over the near term.
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The USDA estimated hog slaughter came in at 477,000 head yesterday. This brings the total for the week so far to 1.902 million head, unchanged from last week but down from 1.928 million a year ago. US pork export sales for the week ending March 17 came in at 23,175 tonnes, down from 38,259 the previous week and the lowest since February 10. Cumulative sales for 2022 have reached 550,200 tonnes, down from 779,500 a year ago and below the five-year average of 616,800. The largest buyer this week was Mexico at 9,235 tonnes, followed by South Korea at 4,811. China was the seventh-largest buyer at 504. Mexico has the most commitments for 2022 at 209,800 tonnes, followed by Japan at 86,300 and China at 64,200.
MARKET IDEAS
While the futures market is pricing in a much stronger than normal seasonal advance for June hogs, the cash fundamentals do not appear to be strong enough to support this move. There is still no technical sign of a top for June hogs, but the upside target of 124.47 has been met. The next target is 126.27. Minor support comes in at 118.95, and uptrend channel support is at 119.10. Moves below those levels would the chart pattern.