Look out below.
Prices for pork look set to plunge over the summer, recent research shows.
August-dated futures contracts for lean hogs recently fetched around $1.16 a pound on the CME, the highest level since mid-2014. That’s up from around 62 cents at the beginning of the year.
But what goes up must come down, according to a recent report from financial firm Hackett Financial Advisors, which states.
- “Summertime US pork exports to China should dry up, leaving too much supply to find a willing buyer at current high prices.”
Hackett sees two scenarios both of which will lead to a drop in sales to China, which is by the world’s largest consumer of the meat.
China Syndrome
First, if the country has rebuilt its herd of hogs following a major outbreak of African Swine Fever in 2018, it won’t need foreign production, so exports from the US will likely drop.
Second, suppose the Chinese government has been economical with the truth about the extent of the recent recurrence of the disease. In that case, a likely slaughter of the current herd would flood the Chinese market with pork.
In short, “they will not need to import much pork from the US over the summer months,” the Hackett report states.
Extended Bullishness Is Bearish for Pork
That data recently showed that traders held 76,000 futures contracts betting on a continued rally than they they did on a price fall. That puts the positioning in the 96% percentile over the past five years, according to data collated by New York-based financial form Macro Risk Advisors.
Typically, when investors or traders collectively take an extraordinarily bullish or bearish view, the likely next move is in the opposite direction. In this case, that would be a downward move in hog prices.
In this case, Hackett sees the price headed far lower with “a swift decline to low $90’s support, the report states.