When Pigs Wallow

Good Day,

There was some mid-week turbulence in price movement with corn prices holding steady on the week but it was mostly business as usual for the bears.  U.S. fall crops are off to a good start for most and the weather has been favorable.  Future prices have taken a step back, but harvest is a long way off.  Bear traders were confident enough to push Dec corn futures as low as $4.60/bu, but not arrogant enough to force a $4.50/bu or less price this early.  The next USDA report is Wed, June 12th.  I would be surprised to see Dec corn futures drop below $4.50/bu or rally above $4.80/bu before then without being bought or sold heavily by active day traders.  By the time we reach the end of next week we could see some bearish confidence turn to arrogance or a small sigh of bullish relief based on a combo of crop report numbers and any potentially threatening forecast.

Wheat prices did take a step back, and then another, marking the beginning of domestic harvest pressure. Russia’s production problems are still in the news:

https://www.hellenicshippingnews.com/russias-sovecon-cuts-2024-wheat-crop-forecast-again-to-80-7-mln-tons/#:~:text=Russia's%20Sovecon%20agricultural%20consultancy%20on,series%20of%20weather%2Drelated%20downgrades.

However, on Friday Turkey announced a halt to wheat imports until October and that they would be lifting a ban that had been in place since 2018 on exporting flour from domestically produced wheat sending a message to the rest of the world that the Black Sea area production losses are not a concern for them.

https://gulfnews.com/business/markets/turkey-halts-wheat-imports-until-october-to-protect-producers-1.103002159

Soybean prices performed what looked like a one-day pump and dump scheme.  Prices were up roughly $0.20 on Thursday with news that Brazil proposed raising income taxes by 20%.  Transactional business came to a halt as farmers and exporters waited to see how viable the proposal was.  The hope that this news might spur some China purchases of U.S. soybeans was indeed met with a 104,000 metric ton sale of 2023-24 soybeans to China.  The first flash sale that has had China’s name on it since Jan 19th (not counting numerous purchases by “unknown” in the between time).  Nevertheless, China has still not made any commitments for 2024-25 beans and until they do the market will probably have a tough time getting back above $12 for the November 2024 Soybean contract without a weather concern.

Pork Price Collapse

The month of May can be a frustrating month for hog traders.  The basic seasonal pattern for hog prices is higher in the summer months (June-July) and lower in the fall/winter (October-December).  As temperatures heat up in the summer hogs spend more energy keeping cool and eating less.  Cold winter temperatures have less of an effect as most finishing operations are confined allowing the pigs to pack on the pounds with ease. 

These summertime premiums and winter discounts are built into the futures price structure at any given point in the year no matter when you look meaning there is no easy button to say sell in July and buy in December.  Theoretically you could have the December lean hog futures reach their contract lows at the same time the July lean hog futures reach their contract highs at any point in the year.  That scenario is unlikely but not anymore so then trying to guess when those lows and highs will happen.

On April 23rd the July 2024 lean hog future contract topped at $110.450/cwt and then proceeded to drop through the entire month of May into the first week of June hitting $91.80/cwt this week for a low.  A 17% drop right before the seasonally high price time of the year.

On April 26th the July 2024 lean hog futures held a $22/cwt premium to the October lean hog futures.  That spread narrowed up to reach a low of $13.22/cwt this last week.

For those new to trading hogs, it might look like a good time to buy the July lean hog futures. For those not new to the hog trade it might look like a reasonably good spot for a bull spread, i.e. buying the July lean hog futures, and selling the October contract.  For the experienced hog trader, they have probably given up trading hogs and moved onto something else… from a smaller house in a less attractive location.  

“It is a great piece of skill to know how to guide your luck even while waiting for it.” – Baltasar Gracian

Have a comment or question? Please reach out to derrick.hermesch@pinionglobal.com or call at 785-338-9605

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