H@ms Marketing Services is advising producers to forward contract at least half of their production for this coming winter.
The USDA’s Quarterly Hogs and Pigs Report, released last week, indicates total supplies in the U.S. as of March 1st were about 3.1 percent higher than year ago levels.
Tyler Fulton, the Director of Risk Management with h@ms Marketing Services, says this confirms we have an abundant hog supply and, since the report’s release, we’ve seen some sharp declines in the futures.
We’re seeing drops of about 1.50 to 2.00 dollars per hundredweight in the summer time frame while the deferred months, the October and December futures, they’re seeing slightly more moderate losses representing about 75 cents to 1.50 in early trade this week. I think it’s important to note that the current forward prices or futures values are still better than what cash values were last year, in particular for that September through December time frame. That’s when pork production is likely to peak and is typically seasonally the highest production levels.
When you can price your production and secure those prices for something better than year ago levels when we’re dealing with the expectation of five percent more pork in that time frame and still great uncertainty on the demand side, it makes a lot of sense to be pricing as much as half of your planned production in that time frame. That’s really where our focus has been, is on that last half of the year and being fairly aggressive even after we’ve seen roughly a six to ten percent drop in prices over the last week and a half to two weeks.
~ Tyler Fulton, h@ms Marketing Services
Fulton says, when you see year over year production increases approaching five percent for any given quarter it raises concerns over whether the market can clear that inventory at comparable prices.
