The hog market brought no pleasant surprises, only shocks.
It had already fallen badly enough, and then, wow, today brought a “double crash.”
What does “double crash” mean?
Both spot and futures prices have collapsed.
Today, the spot price of live hogs officially fell below the threshold of 9 yuan/kg, moving another step closer to the low for the year.
Futures fared even worse, falling 390, not only breaking below the previous 9400 but closing directly at 9150.
Good grief, isn't that scary?
At the time, I still thought 9400 would at least offer some support, but when it fell today, there was no hesitation at all.
So the live hog market must be in an absolute frenzy today.
Why has it crashed so badly?
There is no need to say much about supply and demand, because supply and demand for live pigs form an overall pattern, and this is not something that has only just emerged. The market has long anticipated it, so the sudden crash must not be due to supply and demand.
If the problem isn’t supply and demand, then it can only be one thing: sentiment.
It can only prove that pessimism in the hog market far exceeded market expectations.
Previously, the bears were dragging it down. Now the bulls can’t hold on, and it’s collapsing on its own.
Why is it falling so fast?
It was mainly several things coming together.
First, it was quite difficult to get pigs ready for slaughter last month. By the middle to latter part of the month, the number of pigs ready for slaughter had only just exceeded 6 percent, so there was a concentrated push to get them ready for slaughter at the end of the month.
The pressure of 10 month has finally passed, but the pressure in 11 month remains. The shipment target for 11 month is no lighter than the target for 10 month, and leading companies’ shipment plans for 11 month are even higher.
So what should we do?
We can’t let the passive situation seen in 10 months play out again, so we need to plan ahead and continue cutting prices to boost sales at the beginning of the month.
Second, expectations for cured meat have shifted later.
If demand for preserved meats and similar products had picked up at this point, the situation might have been somewhat better. But this year has turned out to be a warm winter, and expectations for preserved-meat consumption have been pushed back.
Moreover, judging by the patterns of the past two years, demand for preserved meats and sausage-making has not been very concentrated, but rather relatively spread out. As a result, its ability to boost the market is also diminished.
Third, the futures market is trading at a premium.
Although futures have already fallen sharply, they still need to be considered alongside spot prices. Spot prices have now fallen below 9 yuan per kilogram, and future consumption has also been downgraded. This means that any support for future hog prices will be very limited.
So when spot prices keep falling, the premium in the futures market has to be squeezed out.
So this drop wasn’t caused by any new bearish news; it was simply the premium being paid back.
So, has it bottomed out this time?
I think it should be just about there.
Previously, officials also offered their assessment: hog prices have basically entered a bottoming-out range. Even if they fall further, there is not much room to fall, and they are unlikely to drop below the previous low for the year.
There is another factor behind the recent decline: prices from large-scale producers and smallholders have become inverted. So this is not just a matter of costs. Another important issue is that when large-scale producers sell hogs at low prices, they are considering cash flow, not costs.
This is also an important signal that pig prices are nearing a bottom.
There are two other, more important signals for determining whether a bottom has been reached: one is that pig prices stabilize for more than 2 consecutive weeks and stop making new lows. The other is that the average weight of pigs marketed begins to decline.
At present, none of them has been met, so Second Senior Brother still needs to keep honing his skills.