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:
And almost 8% since the beginning of 2011:
Here's some more color on the recent action by DailyMarkets.com:
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):
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