Good grief, after falling relentlessly, hog prices finally turned higher on the 9th.

 

The national price of pigs weighing over three yuan per jin finally rose by 1 fen. Don’t underestimate this 1 fen rise—it was hard-won.

 

Prices rose in 11 provinces, 7 more than yesterday. North China and Northeast China saw gains across the board, and the mainstream transaction price in Heilongjiang returned to 4.3 yuan/jin.

 

There was also a surprise in the futures market.

 

The most-traded contract closed at 9350 yuan per ton, up 1.91%, and reached an intraday high of 9430. The deferred-month 2705 also rose nearly 2%.

 

It could be said that this was the only glimmer of red in the hog market since it entered this dark period, and it sent an important signal—the market has started to bottom out.

 

 

First, the futures rebound was driven more by short sellers taking profits and closing positions than by a bullish counterattack.

 

On the 11 month 6, open interest in the main contract fell by 6800 lots. By the 11 month 9, it had fallen by another 11260 lots. Over the two days, the total reduction was 18000 lots.

 

Meanwhile, the price rose from 9195 to 9350, an increase of 155 yuan.

 

This is clearly short covering, correcting the discount, rather than a substantive improvement on the demand side.

 

So why are the shorts exiting?

 

First, they’ve made some profit. Second, they also think prices have already fallen this low, and there isn’t much room for further decline, so they might as well put the money in their pockets and walk away.

 

Second, some are holding back from selling, while others are selling off.

 

Pig prices have finally started to rise, but this increase is mainly due to indifference and sellers holding back.

 

As we said before, with pig prices having fallen this low, some farmers have simply given up. Whether they sell their pigs or not, they lose money, so they’re not in such a hurry anymore and can just sell them gradually.

 

Another part, as mentioned yesterday, has started anticipating a reversal next year, so they have begun holding back and waiting.

 

Once they slow down their operations, the pace of shipments slows too, and hog prices start to catch their breath.

 

On the other hand, many large companies are still shipping at the same pace. They do not base their decisions on hog price fluctuations over just a day or two; at this point, cash flow matters more to them.

 

So some are holding back sales while others are still dumping stock, and prices cannot gain momentum.

 

Third, consumer demand is hard to stimulate.

 

Although the season for cured meat production has not yet begun on a large scale, it is an undisputed fact that expectations are limited.

 

On the one hand, the overall macroeconomic backdrop is a factor, with household finances under pressure. On the other hand, cured meat production has clearly been declining over the past two years. Add to that the warm winter, and the boost from cured meat production is expected to be very limited.

 

So supply pressure has not eased, consumer demand has weakened, and pork prices have no room to rebound.

 

So the current uptick can only mean one thing: the hog market has only just begun to bottom out, and a rebound is still a long way off.

 

Another point worth mentioning is the reluctance to sell.

 

As mentioned yesterday, because the market now has very high expectations of a turnaround next year, some farmers have started holding back sales again.

 

The words had barely left our mouths yesterday, and action had already followed today: the 3-part package for the prolonged bottoming-out period—holding prices firm and withholding sales, buying the dip and restocking, and blowing bubbles—is about to make its entrance.

 

So after the previous wave of rapid destocking, the pace of destocking is likely to slow again going forward.

 

Last year, the market broadly expected a turnaround in the second half of this year. But after that failed to materialize, people started expecting one next year instead.

 

The hog market has entered a vicious cycle: after prices fall for a long time, producers destock, but as soon as prices rise, they immediately expect a turnaround and start holding back sales again.

 

These hogs held back from sale will not disappear; their sale will simply be pushed back—to 12 month, to 1 next year, to when the turnaround was supposed to happen.

 

As a result, working through excess production capacity may become a persistent curse hanging over the hog market.