Despite an increasing slaughter pace, the impacts of COVID-19 related shutdowns on the lean hog market have yet to be resolved.
Stuart Unger, who works for the Price Futures Group, said even with processing plants announcing increases in production, the backups caused by coronavirus make things more uncertain for those looking to make a profit on hogs.
“I think, at this particular time, it is crazier than it was two weeks ago,” Unger said. “They say things are starting to move, but they aren’t really moving. There’s still a lot of things that are backed up. Pigs aren’t as bad as, say, the cattle market, but we have to wait to see how things are going to play out with China.”
Exports are the major factor that will determine demand for the U.S. hog markets, Unger said.
As of the export sales report for the week ending May 14, the pork market saw overall net sales reductions of 5,800 tonnes in exports out of the U.S. China led the way by canceling 12,600 tonnes of pork sales.
Mark Nemenoff, author of the Nemenoff Report, said with exports in flux, it’s too tumultuous to figure out exactly where the hog market can go. If political rhetoric settles down and China starts buying, he sees the sky as the limit for hogs, noting potential $70-75 contract prices.
However, he’s not as optimistic about that happening.
“Pork is one of those things that we certainly produce much more than we have for consumption,” he said. “It’s a product grown for the export market, and I don’t see it growing at the moment.”
For producers and traders looking to play the markets, Nemenoff urged caution, saying it isn’t necessarily a “wait-and-see” market.
“I think there will come a time when that will be the proper strategy,” he said, but “... I can’t count how many people have been burned who have tried the long side only to see the market fall back.”
Because of that, Don Roose, president of U.S. Commodities in Des Moines, said having the right risk management in place is important.
With hogs and cattle being backed up, the supply side of the equation is swelling and it might take some time to alleviate that problem. He said China’s recent reduction in export sales is equally as concerning on the demand side.
Roose suggested producers use options as an insurance policy based on the uncertainties moving forward.
“You’ve got an issue with supply and uncertainty with demand,” Roose said. “Then at the retail level the price shot up so much in the U.S. that our best grilling time of the year, that window is shutting.”