Things to Consider….
Since the end of October, nearby and deferred lean hogs futures have traded in opposing directions providing varying opportunities for producers looking for risk mitigation in late 2021 and into 2022.
As illustrated by the lean hog futures charts, nearby December 2021 has traded unchanged from late Oct to late Nov. That, following the sharp run up in the first week of October in reaction to the September Hog & Pig report released on Sep 24th which was then followed by an equivalent collapse during the month of October. With December hogs trading range bound just above $75 US per cwt, the expectation is for that contract to expire near $75 as CME cash prepares to merge with the nearby around the 14th of December.
A sharp contrast to the direction of the December has been the activity in Feb, April and most other 2022 hog contracts.
The spread chart shown above illustrates that in early October the Dec contract was approximately -$3 below the Feb contract (red line), and had been that way since March 2021. Historically speaking the Dec contract has shown a spread to the Feb anywhere from 1 under to as much as 6 under before commonly leveling out in the fall and settling between 4 and 6 dollars below the Feb at expiry. However recently in 2021, the weekly spread chart shows that Dec traded to as much as $7 under the Feb and the daily trade went beyond $8 below the Feb.
The large gap or spread between Dec and Feb indicates that the market anticipates lower cash due to more hogs into the end of the calendar year, but does not believe the numbers will be burdensome once into the start of 2022. The market is unwilling, based on the larger than normal spread, to bring Feb down with December. Other positive news is the June 2022 lean hogs and other summer months have reached new contract highs this week, as the market anticipates further tightening of supplies once into the middle of 2022 which was projected in the last USDA H&P report released in Sep.
The next major supply report is to be released in late December, on the 23rd. That report will either confirm the numbers published in Sep or provide a new set triggering further reaction and direction for the market.