Lean Hogs, Corn, Geopolitical Risk, Feed Prices, Technical Outlook - TALKING POINTS
- Lean hog prices fell for a second month in August, but the pace of losses slowed
- September may see a rebound in swine prices as bullish tailwinds materialize
- Corn traders are betting that prices move higher, which would belly lean hog prices
Lean hog prices in Chicago fell 5.86% to close out August trading, extending losses from July when prices fell 10.9%. The October contract settled at 91.525 per pound. A drop in cash prices, which are trading at a premium to prices on the Chicago Mercantile Exchange (CME), weighed on sentiment in the futures market, pulling prices over 2% lower on Wednesday. Like crude oil and other commodity prices, lean hogs are now trading near levels that preceded Russia’s Ukraine invasion.
With much of that geopolitical risk premium removed from the commodities market, traders can turn their focus back to more traditional fundamental factors. The upcoming Labor Day holiday in the United States on September 5 marks the traditional end of summer and with it, barbeque season. That typically leads to several months of modest reductions in demand. A temperature drop also helps swing to pack on some pounds, translating to an increase in supply, which weighs on prices.
However, corn prices rose through August, gaining 7.14% throughout August and breaking a three-month losing streak. The cereal grain is a key feed ingredient for livestock, pigs included. Fertilizer prices have risen, and extreme weather has sent temperatures higher, causing dry conditions that are detrimental to crop yields. A protracted increase in feed prices would support a bullish outlook for lean hogs. Ranchers cut back on feed if feed prices climb too high. That reduces the animal’s weight, which leads to a fall in supply.
Agriculture traders, and specifically speculators, have grown increasingly optimistic about corn prices. According to data from the Commodities Futures Trading Commission (CFTC), non-commercial long positions have increased for four consecutive weeks. For the week ending August 23, long bets increased by 25,640 contracts, bringing total speculator positions to 339k, the highest since June. If those traders are correct, and those maize prices rise through September, it should help support lean hog prices over the coming weeks and into October.
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
