Hog rally good news, but exports needed long-term

(Gloria Solano-Aguilar photo courtesy ARS/USDA)

CNS Canada — The recent rally in U.S. hog futures offers hedging opportunities and cash prices are supported for the short term, but Tyler Fulton at Hams Marketing tempers optimism for the longer-term outlook.

“We have advocated for hedging, particularly for the fall and winter timeframe,” he said.

However, he cautioned, the current rally is driven largely by the domestic situation in the U.S. The problem with relying too much on that, he said, is that North America is still export-dependent when it comes to hogs.

The U.S. domestic situation looks strong for the next six months, he said, with summer barbecue season underway and two new processing plants expected to begin operations this autumn.

That added competition for producers’ hogs could mean good things for farmers in the short term, he said.

However, he added, the market still needs to find a way to move large volumes of pork in the U.S. and that means exports must play a key role.

While other U.S. pork markets outside of China are putting up good numbers and supporting prices for the time being, Fulton said any concerns over the North American Free Trade Agreement, or a border adjustment tax, or other issues can have a cooling effect on U.S.-Mexico trade, which can impact the overall market.

Chicago Mercantile Exchange (CME) July lean hog futures settled Tuesday at 85 cents/lb., marking the highest point for the front-month contract in the past year.

Hog futures on Monday rallied by four per cent due to investment by fund managers and by expectations of a less-than-anticipated supply.

— Terry Fries writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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