Wednesday, July 18, 2012

Today's Major Market Move: Lean Hogs Futures Drop 15% Month to Date

The above average warm weather this summer has proved to be a double whammy for Lean Hogs Futures Prices. Supply has increased with Farmers slaughtering more of their herds because of higher grain prices while demand has fallen with the higher temps making outdoor grilling less enjoyable. The combined effect has translated into plummeting hog prices, with the front month futures contract dropping over 15% for the month:

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And almost 8% since the beginning of 2011:

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Here's some more color on the recent action by

The relentless heat affecting a large portion of the U.S. is starting to take its toll on hog producers, as soaring feed costs and weak pork demand have sent Hog futures prices plummeting. The sell-off is especially severe in the fall and early winter month contracts, as many traders fear that more producers will be forced to liquidate their herds because the high cost of feed makes raising Hogs unprofitable. In addition, record heat has curtailed consumers’ interest in grilling, which has cut the demand for both beef and pork lately. The USDA reported that pork carcass composite prices continue to fall, with values now down over 9% from year ago levels. Cash market traders report packer bids are flat to $1 per hundredweight lower, as most processors are current with supplies and recent weak pork demand has many processors running operations at a loss. Large speculators are currently net-long Lean Hog futures, according to the most recent Commitment of Traders Report, and further price weakness may be in the cards should this long position be liquidated on continuing bearish fundamentals.
If we take a look a the top gainers in the commodity complex for the month of July, we see how grain prices have surged (take a look at the top 6):

Click here to go to the live table.

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