Roaring demand for pigs in China fires up rally in Chicago hog futures market
This article from the South China Morning Post may be of interest to subscribers. Here is a section:
A robust appetite for cuts like pig feet, ears and snouts in the world’s biggest pork-consuming nation is fueling a rally for hogs in Chicago. Investors last week increased their bets on a hog rally by the most since January, and the number of contracts outstanding has jumped to the highest in two years.
Inflated corn costs in China forced the country’s farmers to cull herds and shrink pork output, spurring demand for more imports. The nation could buy as much as 5 per cent of US production this year, according to Dermot Hayes, an agricultural economist at Iowa State University in Ames, Iowa. Hog futures are trading near the highest since 2014, the year prices reached a record because of a piglet-killing disease.
“If you have a specific product that China as a culture eats and has demand for, that adds value,” Randy Spronk, president and co-owner of hog producer Spronk Brothers III, said in an interview last week at the World Pork Expo in Des Moines, Iowa. “Looking forward, if they shrink the sow herd or increase per-capita consumption, the potential that’s there is phenomenal.”
The Pork Bellies contact was retired a few years ago because the market is so heavily controlled by producers that also act as processors so there was no longer a need for hedging future production. That gives us an indication of how closely held the pig market is. Pork is the primary protein in Chinese cooking so as incomes improve, per capita consumption can be expected to continue to rise.
Lean Hogs is in backwardation from the most liquid August contract out to April 2017 suggesting a near-term supply deficit. Prices trended lower from a 2014 peak near $130 to a late 2015 low near $55. Lean Hogs rallied following a contract change in February to break the medium-term progression of lower rally highs and a sustained move below the trend mean would now be required to question medium-term scope for additional upside.
Feeder Cattle is also trading in backwardation right across the curve but there is little evidence, just yet of a short-term supply deficit. The price chart remains in a consistent medium-term downtrend. While it continues to steady in the region of the December and May lows, a clear upward dynamic will be required to signal demand returning to dominance beyond some short-term steadying. A break in the 18-month progression of lower rally highs will be required to break the medium-term downtrend.