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Swine flu is spreading human to human and has spread from Mexico to the US and Canada and is likely to spread further. If in meat, it will be killed when cooking so pork consumption is not the real issue. Uncertainty and emotions, however, are factors which are likely to cause a major sell-off in hog prices this week. With the premium of June futures to the cash market already steep, the sell-off could gain momentum. China has already banned imports of pigs and pork from Mexico and from three US states. However, the concern now is that the human to human spread could be more significant and that the new strain which has still not been linked to any specific hog herd could spread quickly. On top of all of the pork related issues with the flu, there are concerns that more people will stay at home, eat less pork and less red meat in general and that the economy may contract. June hogs pushed higher early on Friday as the turn up in loin prices late last week gave traders a bit more confidence that packer margins could see some improvement this week. This did not last however, as the market gave up its gains in the afternoon and threatened Thursday’s low, which was also the low for the week, by the end of the session. The run-up in cash markets and the sell-off in pork product has pushed packer margins in the red. Some talk that wet weather in the western Corn Belt on the weekend could spark increased marketings early this week along with the June premium may have helped pressure the market in the end. The Commitment-of-Traders reports on Friday showed a slight selling trend from trend-following funds who increased their net short position to a whopping 17,390 contracts. Index funds were light buyers. The market is oversold. The CME Lean Hog Index as of April 22 came in at 61.10, up 85 cents from the previous session and up from 57.40 the week before. The estimated hogs slaughter came in at 412,000 head Friday and 34,000 head for Saturday. Slaughter was lower than expected and could be a sign of weak demand from the packer. This brings the total for last week to 2.145 million head, up from 2.122 million last week at this time but down from 2.248 million a year ago. Pork cut out values, released after the close Friday, came in at $59.28, down 50 cents from Thursday and down from $60.88 the previous week. Look for the market to see significant long liquidation selling early this week as emotions and outside market forces pressure.
TODAY’S GUIDANCE: With pork cut-out values already showing signs of weakness last week and a ban on exports of pork to some areas of the world already announced, traders see the swine flu outbreak in Mexico as a very bearish short-term development. Not only will exports be banned to some locations, the perception that there is risk in consuming pork should add to the bearish short-term demand factors and this could spark additional selling pressures. Just as poultry consumption in Europe fell temporarily with bird flu, US pork consumption is likely to fall.
