The second senior brother is going wild today.
Futures surged by 230 points, reaching a high of 9750 before closing at 9425, up 2.42%.
This probably left a lot of people puzzled: what happened? Why did it rise so sharply all of a sudden?
But then, taking a look at the spot market, it hadn’t budged at all; it was still hovering around a bit over 8.
So this increase is problematic.
What is the problem?
First, more are being withdrawn than brought in.
Previously, live hog prices plunged all the way down, hitting a low of 9040—how alarming, right on the brink of 9000.
But the market is risky after all. After a sharp drop, it is hard to bet on another sharp drop. Speculators in particular are even less willing to take that risk, so some speculative bears took their profits and got out while they could.
But some did come in. Who came in?
Companies and traders engaged in normal hedging.
But clearly, more are withdrawing than entering, so the market price moves up.
Second, the more distant contract months offer more potential for speculation.
Nearby-month live hog futures have risen sharply, while deferred-month futures have risen even more sharply. Why the bigger rise?
Because of that 3 piece of data mentioned yesterday:
First, more sows were removed in 10 month than in 9 month. Second, the number of newborn piglets in 10 month fell both month on month and year on year, marking the first year-on-year decline. Third, the number of culled sows fell sharply.
What do these 3 data pairs together tell us?
This shows that there really are fewer pigs.
The reduction in the number of pigs benefits deferred months, not the current month, so there is little room to speculate on the nearby month. Many people have returned to positioning themselves in deferred months.
Third, hog prices really can’t fall any further.
8.53 yuan/kg; this price has already fallen to nearly 26% below the cost line.
Moreover, the industry has been operating at a loss for more than a year,pig feedCompared with 3.58, it is 1 that much lower than the 5 level-one warning threshold.
Moreover, based on the spot market over the past few days, it has repeatedly tested the bottom around 8 blocks 5 for several days.
What does this mean?
This shows that pig prices really cannot fall any further; if they drop any lower, no one will raise pigs anymore.
There is a saying in business: don’t try to make the last penny. The same applies to the hog market: when prices look unlikely to fall any further, few people are willing to bet on another decline.
Moreover, none of the three major hurdles facing spot goods has budged:
Pigs scheduled for slaughter at the end of the year still have to be sent to slaughter; there is no way to hold them back, nor are there the conditions to do so. With pork prices having fallen this far, the longer they are held back, the higher the costs.
The average weight of pigs shipped for slaughter is still rising, indicating that there are still many heavy pigs. Even with the subsequent arrival of the curing season, sausage-making season, and Spring Festival, demand will not be enough to absorb this many pigs.
Third, frozen food inventories are still just as high, a full 13 points above last year. These inventories are also all waiting to be dumped onto the market before the New Year.
So what could make pig prices rise?
So it is clear that the spot market has not moved at all, and is unlikely to move. This is just futures-market self-indulgence. Nor is this a rally driven by expectations of rising demand; it is merely a shift and reshuffling of power between bulls and bears, so the industry may not accept this rise.
It may not necessarily recognize it; sooner or later, it will still have to fall back down.
So despite the lively rise in futures, the spot market is still in the same situation:
Expectations for the curing and preserved-meat season are fading. Year-end stocking for the Spring Festival may provide a small boost, but its impact will be limited; it would be good if prices could get back above 9 yuan/kg.
So this increase of 230 points is not due to pigs, but to money. The pressure on our “Second Senior Brother” remains unchanged. Don’t get excited as soon as you see an increase; the worst thing is celebrating too soon.
Futures surged by 230 points, reaching a high of 9750 before closing at 9425, up 2.42%.
This probably left a lot of people puzzled: what happened? Why did it rise so sharply all of a sudden?
But then, taking a look at the spot market, it hadn’t budged at all; it was still hovering around a bit over 8.
So this increase is problematic.
What is the problem?
First, more are being withdrawn than brought in.
Previously, live hog prices plunged all the way down, hitting a low of 9040—how alarming, right on the brink of 9000.
But the market is risky after all. After a sharp drop, it is hard to bet on another sharp drop. Speculators in particular are even less willing to take that risk, so some speculative bears took their profits and got out while they could.
But some did come in. Who came in?
Companies and traders engaged in normal hedging.
But clearly, more are withdrawing than entering, so the market price moves up.
Second, the more distant contract months offer more potential for speculation.
Nearby-month live hog futures have risen sharply, while deferred-month futures have risen even more sharply. Why the bigger rise?
Because of that 3 piece of data mentioned yesterday:
First, more sows were removed in 10 month than in 9 month. Second, the number of newborn piglets in 10 month fell both month on month and year on year, marking the first year-on-year decline. Third, the number of culled sows fell sharply.
What do these 3 data pairs together tell us?
This shows that there really are fewer pigs.
The reduction in the number of pigs benefits deferred months, not the current month, so there is little room to speculate on the nearby month. Many people have returned to positioning themselves in deferred months.
Third, hog prices really can’t fall any further.
8.53 yuan/kg; this price has already fallen to nearly 26% below the cost line.
Moreover, the industry has been operating at a loss for more than a year,pig feedCompared with 3.58, it is 1 that much lower than the 5 level-one warning threshold.
Moreover, based on the spot market over the past few days, it has repeatedly tested the bottom around 8 blocks 5 for several days.
What does this mean?
This shows that pig prices really cannot fall any further; if they drop any lower, no one will raise pigs anymore.
There is a saying in business: don’t try to make the last penny. The same applies to the hog market: when prices look unlikely to fall any further, few people are willing to bet on another decline.
Moreover, none of the three major hurdles facing spot goods has budged:
Pigs scheduled for slaughter at the end of the year still have to be sent to slaughter; there is no way to hold them back, nor are there the conditions to do so. With pork prices having fallen this far, the longer they are held back, the higher the costs.
The average weight of pigs shipped for slaughter is still rising, indicating that there are still many heavy pigs. Even with the subsequent arrival of the curing season, sausage-making season, and Spring Festival, demand will not be enough to absorb this many pigs.
Third, frozen food inventories are still just as high, a full 13 points above last year. These inventories are also all waiting to be dumped onto the market before the New Year.
So what could make pig prices rise?
So it is clear that the spot market has not moved at all, and is unlikely to move. This is just futures-market self-indulgence. Nor is this a rally driven by expectations of rising demand; it is merely a shift and reshuffling of power between bulls and bears, so the industry may not accept this rise.
It may not necessarily recognize it; sooner or later, it will still have to fall back down.
So despite the lively rise in futures, the spot market is still in the same situation:
Expectations for the curing and preserved-meat season are fading. Year-end stocking for the Spring Festival may provide a small boost, but its impact will be limited; it would be good if prices could get back above 9 yuan/kg.
So this increase of 230 points is not due to pigs, but to money. The pressure on our “Second Senior Brother” remains unchanged. Don’t get excited as soon as you see an increase; the worst thing is celebrating too soon.