Spot prices had just been said to have stopped falling on the 26, but they fell again on the 27. The drop was small, though, and prices are still edging down little by little. After falling to this level, a much steeper drop is hardly likely.

 

Still, being slowly cut to pieces like this is genuinely painful.

 

But today’s subject isn’t spot prices; it’s futures. Live hog futures put on another surreal show today:

 

It hit a new low just yesterday. Today, it was supposed to keep bottoming out, but suddenly surged in a straight line in the afternoon, briefly climbing back above the ten-thousand-yuan threshold.

 

Although it eventually fell back down, overall it was still a sharp rally. From the low of 9480 to the high of 10055, it rebounded by nearly 600 points.

 

I have to say, Second Brother Pig is really going wild.

 

How exactly did it rally by 600 points?

 

There is no fall without a reason, nor a rise without a reason. There is always logic behind a rise.

 

 

The first reason is that pig prices have fallen about as far as they can.

 

The pig-to-grain price ratio has continued to fall below the national first-level alert threshold, and it keeps getting lower—so low that it’s like high jumping in a toilet: over the top (manure).

 

Moreover, farmers have continued to incur losses, for more than ten months in a row—a longer period of losses than ever before.

 

Honestly, with prices having fallen this far, pig farming is simply no longer viable.

 

Once resistance to accepting lower prices sets in, spot prices stabilize somewhat locally, since they really can’t fall any further.

 

This is also widely acknowledged by the market, so pig prices have more or less reached their bottom.

 

Second, the data on breeding sows from the third quarter is still having an impact.

 

According to data from the National Bureau of Statistics, the figure is 3602 ten thousand head, which is 96% of the control target of 3750 ten thousand head. It fell below the baseline for the first time, down 10.7% year on year and 178 ten thousand head from the previous quarter.

 

This figure itself is nothing new; it came out in mid-10 month. But when pig prices fell to 4.6 yuan per jin, it went from “all the bearish news is out” to a “story about deferred months.”

 

The market began to wonder again: Will the second half of next year really be different?

 

This is also reflected in the market: live hogs are showing a strong pattern of weakness in nearby months and strength in deferred months, with support for deferred months clearly holding firm.

 

Third, and most directly, the margin adjustment has officially taken effect.

 

The Dalian Commodity Exchange raised the margin for 2701 from 8% to 10%, effective from settlement on 10 month 27 day. This means the cost of holding short positions has risen sharply at once.

 

Judging by today's performance, open interest fell by more than 5400 lots.

 

Rising prices alongside falling open interest indicate that shorts are closing their positions and exiting, rather than longs launching a major push.

 

Add it all up and it becomes clear: this 600-point move came from short sellers retreating, not from buyers mounting a counterattack.

 

So how much upside can this rally really have?

 

Meanwhile, spot prices are still drifting lower, and the average weight of hogs sent to slaughter is still increasing. This shows that large hogs are still being sold off, and the sell-off is not over yet.

 

Shipments from large-scale farms are also still increasing, and with frozen-product inventories remaining high, the pressure has not eased at all.

 

This broad framework has not changed, so whether it is a rebound of 600 points or spot prices stabilizing after bottoming out, these are all minor fluctuations. Pig prices can only continue to bottom out.

 

And the coming 11 month may be even harder to get through.