Hogs on Top in Brutal Market for Commodities

One of the best performing commodities since the first week of May is lean hogs and live cattle. Driven by record imports and expectations of another surge in Chinese demand, hog prices are heading through the roof this summer while most commodities struggle since May.

Seasonal demand (barbeques), Chinese and foreign purchases and a reduction of herds has resulted in newfound support for the worst-performing commodity sector over the past ten years.

Like agricultural commodities, the meats usually harbor a negative correlation to equities in bad months for stocks. Natural gas also shows a similarly negative correlation on bad days for the broader market. These commodities tend to zig when other markets zag – making them ideal diversification tools in a diversified portfolio.

That was the case on Monday as world markets were bludgeoned amid Europe’s debt crisis; lean hogs, live cattle, gold and natural gas rose yesterday while the S&P 500 Index fell 1.8%.

Hog prices hit their daily limits on Monday, rising more than 3%. Iowa hog prices have rallied 20% over the last 12 months while steers have gained more than 16%. With feeder cattle prices at record highs amid soaring corn prices, ranchers are culling their herds. Beef, chicken and pork prices are already much higher across the United States since mid-2010.

But the recent spike in pork and beef prices might be a long-term phenomenon driven by China’s growing appetite for meat-based protein.

China has a smart habit of accumulating raw materials and foodstuffs on price corrections.

This recently occurred in the copper market where inventories on the Shanghai Metals Exchange were drawn down after China hoarded some important metals since last winter. The same story is now working its way through the grain markets as China purchased some serious tonnage of corn last week after prices tanked on June 30 following a bullish USDA crop report.

The bull market in pork has begun. Live cattle will join the party soon.


Average rating
(10 votes)