From energy to metals and agriculture, China is setting global commodity markets alight. Demand from the economy that is leading the world in beating the coronavirus is soaring. Topping the gains in edible commodities is none other than the humble pig, or hog futures.
After ending 2020 almost in negative territory due to fluctuating demand, lean hog futures are up 20% this year. And everyone’s pointing at China, which, according to latest US Department of Agriculture data, has been buying more than a quarter of all American pork exports.
One reason for China’s feverish demand for US hogs is the African Swine Fever which resurfaced in Hong Kong last week, with six pigs found infected first on a local farm on Feb. 4 and another two in the same location a couple of days later. Hong Kong’s policy is to cull all pigs found infected in the same shed.
Since the swine fever first hit China’s hogs in August 2018, it's estimated that the infection has wiped out 60% of the herd in the world’s largest pork consumer as well as producer, which used to supply 30% of the world’s needs.
Swine Fever Hits Hong Kong, Ramping Up US Pork Demand
Before the Hong Kong cases, two new strains of African swine fever hit more than 1,000 sows on several farms in China’s mainland. This has put renewed pressure on the Number One hog nation, and forced other major pork producers, the United States, Brazil and Russia, to step up supplies to China
Some, including veteran commodities analyst Jim Wyckoff, still think China will be able to overcome new outbreaks in its hog herd quicker than previously, and do a better job of meeting its domestic production.
In the year since the global outbreak of the COVID-19, China has achieved what many would or could not do, using coercion and persuasion to mobilize its vast Communist Party apparatus to reach deep into the private sector and the broader population to fight—and win—a “people’s war” against the pandemic.
Beijing is now reaping long-lasting benefits that few around the world expected when the virus first emerged in the central Chinese city of Wuhan in December 2019.
US Pork Sales To Other Nations On The Rise Too
Even if China’s demand for US hogs were to soften a little, Wyckoff believes an uptick in American pork sales to other nations since the fourth quarter of 2020 should keep lean hog futures on the Chicago Board of Trade well supported.
The USDA on Thursday reported US pork net sales at 36,900 metric tonnes for 2021, with China accounting for 9,700 metric tonnes, or 26%.
Added Wyckoff:
“The bull market run in lean hog futures was fueled in part by strong export demand amid reports of disease in China’s hog herd that assuaged concerns about a slowdown in Chinese demand for US pork imports.”
“The rebound in US wholesale pork product movement this week, after a stretch of slow days, has also fueled the hog market bulls.”
The spot lean hog futures contract on the CBOT, meanwhile, settled at 84.50 cents a lb on Thursday, up 20% from where it closed last year at $70.28. Earlier this week, it set a 19-month high of 84.49 cents.
No other edible commodity is up 20% this year. The closest competitor is corn, which is up just 12.5%.
Fundamentals aside, technical action is also currently supportive for lean hog futures.
Investing.com has a “Buy” recommendation for April, or spot contract, for CBOT lean hogs, with a three-tier Fibonnaci resistance forecast first at 84.41, then 84.75 and finally at $85.29.
Should the contract weaken, then a three-stage Fibonacci support is expected to form, first at 83.33, then 83.99 and finally at 82.245.
In any case, the pivot point between the two is 83.87.
As with all technical projections, we urge you to follow the calls but temper them with fundamentals—and moderation—whenever possible.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. As an analyst for Investing.com he presents divergent views and market variables.
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