Lean Hog Futures Prices Were Hit Hard by the U.S.-Mexico Trade Row. Will Hog Bulls Again Show Resilience?

April lean hog (HEJ25) futures prices dropped the daily permissible trading limit of $4.00 a hundredweight on Monday following weekend news that President Donald Trump’s administration was set to implement new tariffs on its major trading partners, including Mexico. The specter of reduced U.S. pork shipments to Mexico, which accounts for over 25% of total U.S. pork exports, would likely lead to more abundant domestic pork supplies and drive hog prices lower in the coming months.

Just last week, April lean hog futures hit a seven-week high of $92.75, which is just shy of the contract high of $93.60 scored in December of last year. However, last Friday, hog futures traders began to sense new trade tariffs on Mexico, Canada and China were not going to be avoided and prices dropped sharply. Then came Monday’s limit-down trading action. On Tuesday, lean hog futures have an expanded daily trading limit of $6.00

On Monday morning, Trump and Mexican President Claudia Sheinbaum agreed to delay any new tariffs until March 1. However, the U.S. maintained its tariffs against China that took effect Tuesday. China, also a U.S. pork importer, immediately launched targeted tariffs in what is being called a controlled retaliation. China’s limited response to the U.S. duty of an additional 10% tariff on all Chinese imports underscores the attempt by Chinese officials to engage in talks that could avert an all-out U.S.-China trade war. China’s new tariffs against the U.S. will not take effect until Feb. 10, giving both parties time to try and reach a deal. Trump said he will speak with Chinese leader Xi Jinping in the next few days. 

Hog traders will continue to closely monitor the Trump trade tariff situation, which remains very fluid.

Hog Market Bulls Have Been Tough When the Going Gets Rough

The lean hog futures market bulls in recent months have shown keen price-rebounding resilience during significant price setbacks. Such could be the case again following what may turn out to be just a knee-jerk overreaction to the Trump tariff threats.

On the positive fundamental side of the lean hog futures and cash hog (HEY00) markets, futures prices have been supported by continued strength in the CME Lean Hog Index. The latest CME index is up $0.29 to $83.77 as of Feb. 3. The cash index has gained $3.34 from the seasonal low scored on Jan. 9. Pork cutout (KMG25) value has also been climbing, despite cutout falling $0.94 to $93.81 on Monday amid the limit-down trade in hog futures.

Last week’s U.S. hog slaughter was estimated at 2.574 million head, which is a 4.5% decline from last year at the same time. Combined with the week prior’s large year-over-year reduction in slaughter, it suggests that hog supplies are tighter than the USDA projected in its December quarterly hogs and pigs report. The agency at that time reported there were 75.8 million hogs and pigs on U.S. farms, up 1% from December 2023, but down slightly from Sept. 1, 2024.

Seasonally, the hog market has had a pattern of price gains into mid- to late-February from annual lows in late December or early January. Also, the late Easter holiday this year may keep retailers and packing plants buying hams for Easter dinner through early March. 

The cash hog and futures markets are likely to be significantly influenced by price action in the cash cattle (GFY00) (LEY00) and futures markets in the coming weeks. Last week, live (LEJ25) and feeder cattle (GFH25) futures markets hit record highs, as did the weekly average cash cattle price. If the cattle markets have or are close to posting major peaks, retailers may decide to pass on to consumers their increased costs for wholesale beef. That could create better consumer-substitution demand for pork at the meat counter. This could buy the hog market bulls some more time until the grilling season begins in late spring and consumer demand for pork rises.

Trading Late This Week Likely Will be Extra Important

As of this writing Tuesday morning, April lean hog futures prices were posting a decent rebound from Monday’s limit-down trade. How the lean hog futures market closes on Friday (prices near the weekly high or near the weekly low) may be a good indicator for price-trending direction during the rest of February.