In my Q1 2023 Barchart report on animal proteins, I highlighted the weak price action in lean hog futures over the first three months of 2023. In 2022, lean hog futures posted a 7.64% gain. While cattle prices rose in Q1 2023, lean hogs went the other way, falling 14.20% in the quarter that ended on March 31, 2023.
Nearby lean hog futures settled at 75.25 cents on March 31, with the June contract at 91.625 cents. The premium for June hogs is seasonal because the grilling season starts in late May.
Lean hog futures had been choppy in April, but the price was not far from the Q1 2023 closing level on May 3.
A slightly bullish weekly chart in the lean hogs
The weekly lean hog futures chart displays a mostly bullish price pattern.
As the weekly chart highlights, the continuous lean hogs futures contract rose from a 37.0 cents pandemic-inspired low in April 2020 to 75.25 cents per pound on March 31, 2023. On May 3, the nearby futures were slightly higher at just below 80 cents per pound. Meanwhile, lean hogs for June delivery were higher at 90.50 cents per pound.
Seasonal highs tend to come in the summer
The 2023 grilling season begins on the Memorial Day weekend at the end of May. Animal protein demand tends to peak as barbecues come out of storage, and the demand for burgers, hot dogs, ribs, and other beef, pork, and poultry increases during the summer.
The twenty-year chart shows the last three price peaks during the grilling season. In August 2022, lean hog futures rose to $1.22525 per pound. In June 2021, the high was $1.22725; in July 2014, lean hogs rose to a record $1.3380 per pound.
Meanwhile, excluding the pandemic-inspired April 2020 low, seasonal bottoms tend to occur during the fall and winter when pork demand declines as barbecues are in storage.
The reasons for higher hog prices
The following factors favor higher lean hog futures prices over the coming weeks and months:
- Seasonality favors higher lean hog prices until the end of the 2023 grilling season in September-October.
- While the USDA slightly lowered the forecast for hog prices in the April WASDE report, it said pork production “is lowered in the second half (of 2023), as the December-February pig crop and producer farrowing intentions for March-May, published in the latest Quarterly Hogs and Pigs report, were lower than previously expected.”
- Inflation remains at the highest level in decades, despite rising interest rates. Increasing energy, labor, financing, and other input prices put upside pressure on animal protein wholesale and retail prices.
- The bullish trend in cattle prices supports higher pork prices. The June and August hog/cattle ratio show that hog prices remain historically inexpensive compared to hog prices. The long-term spread average is around 1.3 pounds of pork value in each pound of beef value. The June spread was over 1.78:1, and the August lean hog-live cattle spread was over 1.70:1 on May 3. Consumers have a choice, and historically low pork prices compared to beef will likely increase pork consumption as inflation pushes all food prices higher and consumers watch the cost of their grocery baskets.
The long-term trend for pork prices remains higher, even though cattle have outperformed hogs over the past months.
The long-term trend is leaning higher
Over the past decades, lean hog futures prices have been gradually increasing.
The long-term chart dating back to 1970 shows a slightly bullish trend of mostly higher lows over the past years.
A rise to a record high is within reach in the volatile hog futures market
Hog futures can be highly volatile and choppy. The hogs have a history of explosive price moves during the peak demand season and implosions during the off-season. Live cattle futures fell to 81.45 cents in April 2020, the lowest price since December 2009. Meanwhile, the decline in hogs to 37.0 cents per pound took pork prices to an eighteen-year low, as the last time lean hogs were under the April 2020 low was in September 2002.
The forward curve in the lean hog futures arena highlights the seasonal high in August 2023 at over 93.0 cents per pound on May 3. The July 2014 all-time high was at $1.3380 per pound and could come into play if pork demand increases as supplies decline.
Hog futures are highly volatile, and a spike higher is not out of the question.
As the August lean hog futures chart illustrates, technical resistance is at the late March 2023 96.525 cents per pound high, with prices above 93 cents. The March 2023 peak is a technical gateway to the $1 level.
Keep an eye on the USDA’s next World Agricultural Supply and Demand Estimates Report on May 12 at noon EST for more data and updated forecasts on the hog futures market. Expect the unexpected in the volatile hog arena, as the grilling season can cause significant price variance.
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