Prepared by Phoenix AgriTec Inc.
Most hog futures were higher in June on average from the month prior. The largest gains on average were made by August +4.43 and October +4.07, followed by July +2.45, December +1.49, February +0.74 and April +0.66. Despite the average, July gained the most throughout June. Expectations for reduced slaughter numbers, seasonal strength in demand, and strong short term fundamentals provided support throughout the month. Some losses occurred toward the end of June on uncertainty with future hog supplies and concerns the quarterly Hogs and Pigs report would show expansion in hog production.
The first USDA report in June was the Livestock and Meat International Trade Data report on June 5, which showed April pork exports at 436 million lbs, -9.8% from the month prior and +9.9% from last year. The WASDE on June 11 showed the 2014 pork production estimate was revised up 0.7% from the last report at 22.8 billion pounds, with slight upward revisions in Q2, 3, and 4 due to a combination of heavier hog weights and larger than previously expected slaughter in Q2, while the 2015 estimate remained unchanged at 23.3 billion. On June 23, the Cold Storage report showed pork supplies at 575 million lbs, -1% from last month and -13% from last year, while pork bellies were +3% from last month and +57% from last year. The Hogs and Pigs report on June showed all H&P at 95% of last year, below expectations for 97.3%, kept for breeding 100%, below expectations for 101.6% and kept for marketing 95%, below expectations for 96.9%.
Cash and cutout values followed their seasonal pattern, moving steadily higher throughout the month, as shown in the graph below. This year, however, cash and cutout moved to near the record highs reached last Feb-Mar. Cutout increased by 17.52 from the beginning of the month, while the one-day CME cash price gained 17.60. The surges pork prices and demand helped push the front month to unprecedented levels.
Cutout values gained considerably on average from the month prior, up 11.23. While all primals gained on average, the greatest strength was from bellies +18.42, followed by hams +16.69, ribs +11.89, loins +9.58, butts +7.47 and picnics +2.68.
US spot cash prices were significantly higher on average in June compared to May. The National 201 report gained 4.93/cwt, the VMR up 3.69, the WCB +7.79 and the ISM up 7.90.
Cash bids in Canada experienced sharp gains on average for June compared to May. Maple Leaf Sig 3 gained 12.80 CAN$/hog, Olymel +11.28 and Sig 4 up 6.61, and Tyson’s VMR rose 9.82 US$/hog.
The Canadian dollar marched higher through June, continuing to rise alongside crude oil prices, which have been boosted by concerns oil supplies will be affected by the unrest in Iraq. The dollar remained near the 0.9100-0.9200 range the first half of the month, but climbed rapidly the latter half, ending June near 0.9360. The major upward shift occurred midway, following a better than expected Canadian inflation reading and dovish results of the US Fed Reserve meeting. The CPI rose 2.3% year over year in May, unexpectedly higher than the BoC’s target of 2% due to increases in energy costs. The Core CPI, which excludes volatile products such as energy, rose 1.7%, more than expectations for a 1.1% rise. The US Fed Reserve meeting concluded with the Chair reiterating interest rates would remain low yet for some time, while the US GDP outlook was surprisingly cut from 2.8 to 2% in 2014. A series of strong Canadian economic data, combined with disappointing US Q1 GDP data propelled the Loonie steadily higher toward the end of the month, while disappointing Canadian Q1 GDP data at the very end of June caused a slight setback. Overall, this resulted in a 0.0063 decline in the BoC noon rate on average from the month prior.