The hog market continues to find strength, after a couple of weeks.
A broker shares what is motivating the steady upward movement.
The hog market has rallied 30-percent, or $25 per 100 weight, within recent weeks. Jeff French, risk manager with Top Third Marketing, says the African Swine Fever virus in China is fueling this market.
“It all has to do with the African Swine Fever affecting China,” French said. “Two weeks ago, they made their biggest U.S. pork purchase we’ve seen in three years, and that awoke the beast.”
French believes the situation is the “perfect scenario,” as funds were previously bullish.
“You had the funds, which is the managed money, net short in the hog contracts. They were betting on lower prices,” French said. “In the last two weeks, they had to flop and bought between 40,000 to 50,000 contracts, which has sent the market straight up.”
The “cherry on top” was new expanded limits, a rare occurrence in the hog market.
“Once the contract locks out three-dollars up on the day and closes that way, the CME expands the limits to $4.50. For three consecutive days, we’ve had three limit moves,” French said. “We have summer months trading above $100.”
Official confirmation of the Porcine Epidemic Diarrhea virus (PEDv) in Oklahoma further pushes the market toward new limits. French says producers can expect similar trading movement within the next couple of weeks. He encourages all to “Enjoy this rally, but manage risk.”
“Buy a 90-cent put,” French said. “That locks in the floor below you – in case this thing falls out of bed – while keeping your entire upside open. If hogs go to $130, you’re still going to make $130. But, you will have your downside protected in case this thing does correct. It is time for action. These markets demand it, and that’s what we’re here to do,” French said.