Country cash prices appeared to stabilize and pork cutout values advanced last Wednesday.  Bullish interests in the hog and pork complex are almost surely hoping that news marks the start of the long-awaited late-spring price surge.  Seasonally diminishing supplies and grilling demand traditionally power hog and pork values to annual highs in the May-June period. 

That seems unlikely this year, due in part to the shocking price spike experienced between mid-February and early April.  Actually, large premiums built into July and August futures indicate traders expect a summer surge this year, with strong summer demand likely meeting supplies greatly reduced by the February peak in PEDV cases.  Although recent slaughter totals have generally matched the 3%-4% reductions implied by the March USDA Hogs & Pigs, bearish traders and pork buyers surely worry about a repeat of the drastic reductions suffered in mid-February.

Whatever the observer’s view of the summer outlook, one has to wonder about the pricing implied by the fourth-quarter contracts.  For example, the October CME contract is currently trading only about 5.0 cents under the latest quote for the CME lean hog index (at 105.85 and 110.98 cents/pound, respectively).  December is trading around 95.00, which is actually above recent quotes for June 2015 futures.  Bulls clearly think the market won’t drop all that sharply from anticipated late-summer highs.  We are less optimistic, but tend to think it’s too early to add to previously established hedges at this point.