I Never Forecast Price but...

When you consider price movements in hogs, there are at least three regular patterns of price movements that are happening simultaneously and their interaction sometimes gives us an unusual outcome.  The three patterns are the seaonal, cyclical and trend patterns in prices that work together to nudge prices around a fairly predictable grand cycle though levels of prices, rather than their patterns of rise and fall are of course harder to predict.  I generally believe there are too many variables with too much variance to adequately provide a price forecast beyond a few weeks.  Since we live in the age of random shocks, all it takes is something like the H1N1 situation on top of a global recession to make price forecasting the terrible task that it always is.  There is a saying that price forecasters should know that seems especially appropriate and that is..."If you must forecast, forecast often." 

With all of that said, and fearing becoming the next in a round of forecasters that held out hope just to see it dashed, I think it is worthy to mention that we may witness this year the strange case of rising hog prices in the the fourth quarter.  This can happen when the cycle movements (the repeating four year pattern of hog prices related to systematic over production followed by contraction) meets up with the seasonal (the 12 month repeating pattern of hog prices that is related to seasonal infertility and the fact that hogs don't eat much and therefore don't grow when the weather gets hot, etc.) in just the right way.

We have had contraction in the US slaughter due to MCOOL and some sow herd culling here in the U.S.  Increasing productivity of the remainder has dampened the decrease but it is still there to some extent.  We are at a low point in the production cycle which should be bullish for prices but demand was destroyed by the global recession and the flu fears.  The terrible profit situation which has resulted over the past several months has kept the lid on production and we are now at a point where the restoration of demand both domestically and in the export markets, which could happen relatively rapidly and persist in growth for several months, will appear as the global downturn moves into history and growth returns to the U.S. and the world.  When it happens, it will spark a strong upward price response for U.S. producers. 

The timing of this momentum could place it in the third and fourth quarter where it might just overwhelm the seasonal declines we expect to see each year as more pigs come to market and weights accelerate in the cooler fall temperatures.  The cycle impact will be positive once the recession stops and its momentum may overpower the price dampening seasonal pattern in the fourth quarter of this year.  It is a long shot but has a better than typical chance of happening.  That would result in at least a flat price in the fourth quarter and may result in increasing prices through the fall and into the new year instead of the plunge we so often see at that time.  Don't look for dramatic price increases all fall but the restoration of demand will have a huge impact on the industry when it comes and it should persist for a while since we will not be able to increase production very quickly to meet the unleashed demands.

I'll regret writing this but I thought I would toss it out there since we are so at a bottom that the only movement possible is up barring another random shock catastrophe.