Commodities Corner: Why a spike in U.S. pork export sales failed to rally lean-hog prices

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Lean-hog futures have taken a beating in recent months, but remain solidly higher so far this year as traders cast a wary eye on weekly U.S. export sales figures.

Prices for the most-active December lean-hog futures contract LHZ19, +0.15%  were little changed, down nearly 0.2%, to settle at 67.83 cents a pound on Monday, after ending 0.3% lower on Friday for a weekly loss of around 2.4%, according to FactSet data.

The contract, however, saw prices climb over 14% in September after posting five consecutive monthly declines in the wake of a nearly 59% spike in March as African swine fever decimated the pig population in China — the world’s largest pork consumer. Prices trade nearly 12% higher year to date.

Data from U.S. Department of Agriculture released on Thursday had shown a jump in net U.S. pork export sales, based on reports from exporters from Oct. 4 to Oct. 10. It pegged net sales at 292,200 metric tons for 2019, a “marketing-year high, and up noticeably from the previous week and from the prior [four]-week average,” according to the USDA. A week earlier, the report showed exports sales of 31,324 metric tons.

The USDA later clarified that the export sales report for the week ended Oct. 10 “accurately reflects what was reported to USDA by U.S. exporters,” and the data includes a “significant quantity of pork sales for the current marketing year that may have occurred in previous weeks,” but had not previously been reported.

“This does not make data geeks like us happy,” said David Maloni, executive vice president of analytics at food service supply-chain-technology company ArrowStream, in a daily report Monday.

While the USDA Foreign Agricultural Service “may still revise or balance some of the inconsistencies, shipments to China, Mexico, and Japan all saw significant increases, and the disparities will not be sorted out until the monthly census data is reported, with September’s data coming out Nov. 5 and October not revealed until the first week of December,” he said.

Still, “the most important takeaway here is the fact that year-to-date pork exports to all destinations are now up a whopping 36 percent from last year and 2.1 percent larger than the entirety of 2018 exports,” said Maloni. “There are still 11 reporting weeks left in 2019.”

Ned Schmidt, editor of the Agri-Food Value View report, emphasized that international pork demand is going to “remain strong.”

China is “not the only one with [the] ASF problem,” he told MarketWatch, adding that Southeast Asia, Korea and the Philippines are dealing with illness in the pig populations as well. The “Americas, north and south, are really the only major ASF free pork producing region” and lean-hog futures are the only way for traders to play the Chinese demand for pork.

Even so, John Payne, senior futures and options broker with Daniels Trading in Chicago, said his team would be “looking to sell rallies this week” in the December lean hogs contract if prices get back to the 70 cents a pound level.

“This is a bullish demand market and you have to be careful wanting to go hog wild…on the short side, which we are willing to do given the massive slaughter numbers of the last few weeks,” he said. “With exports and production running like they are, we just need to be careful to not get caught exposed to the ASF story here while not missing out on what could be a bullish spring rally.”