State pork purchases continue to support hog futures

Since touching a one-year high of 19,915 yuan/ton ($2,929/ton) in mid-May, the main hog futures contract listed on Dalian Commodity Exchange has been in a rangebound and hovered within a tight channel of 790 yuan/ton ($116/ton) for the past two weeks.

A key factor that supported hog futures recently has been state purchases of pork. The state-owned stockpiler is conducting its tenth auction this year to buy 40,000 tons of pork from private companies in China.

This fuelled bullish sentiment in the hog market since March this year, and live hog prices across the country had begun to rebound in April.

Hog futures have also been propelled by companies cutting their hog herd due to overcapacity.

The stockpiler is likely to continue its auctions to restock pork reserves until hog prices recover to a “more reasonable” level, and it normally means when the key indicator of hog-corn ration can retake the level of 6:1.

It is currently at 5.54:1, up from a low of 4.5:1 two months ago.