Summary
Fundamental hog production capacity is expected to be in overall surplus in 2026, making sustained price increases difficult to foresee. Near-month contracts may see premiums erode, with prices likely to experience wide-ranging fluctuations around a medium-term bottom. Market participants should monitor the implementation of state stockpiling and capacity adjustment policies. The USDA's May report presented a somewhat bullish outlook. U.S. soybeans remain firm, as do Brazilian premiums, while domestic arrival pressure is substantial from May to July. The basis is expected to stay weak, with a stronger view on futures prices. Corn faces short-term correction pressure. Attention is on crop conditions before the new wheat harvest and subsequent feed substitution dynamics. The release of over-aged stockpiled rice will significantly impact the market. Considering rising costs for the new crop and support from trade costs, medium-term upside potential is anticipated.
I. Hogs
The foundational hog inventory for 2026 is projected to be more excessive than in 2025. The trajectory of spot prices around the Spring Festival and slaughter volumes from large-scale enterprises confirm this surplus. The estimated slaughter volume for 2026 has been further revised upward to approximately 740 million head. Historical patterns suggest that for hog prices to embark on a sustained upward trend, the breeding sow herd typically requires about one year of significant and continuous reduction. The scale of sow herd reduction in 2025 was relatively modest, making a sustained price rally in 2026 unlikely.
The primary short-term bearish factor materialized in early April, leading to improved market sentiment. Concurrently, policy signals strengthened in late April, making it difficult for spot prices to breach previous lows. Although the阶段性 bearish factor has been realized, current average slaughter weights remain elevated, requiring time for this pressure to be absorbed; thus, prices are likely to linger near the bottom. The hog market currently shows low sensitivity to bearish news. While recent inventory levels have increased, selling pressure may not emerge immediately. If spot prices remain firm, the spot market's price center in June could shift higher. Conversely, if spot prices fluctuate weakly over the next 1-2 weeks, near-month contracts might see premiums contract downward. Large enterprises have reduced planned May volumes, increasing the likelihood of short-term price support. The implementation of state stockpiling and capacity adjustment policies warrants close attention.
II. Oilseeds and Protein
The USDA's May supply and demand report leaned bullish. In the U.S. soybean balance sheet for 2025/26, the crush estimate was raised from 2.61 billion bushels to 2.63 billion bushels, while exports were lowered from 1.54 billion to 1.53 billion bushels. This resulted in a reduction of ending stocks from 350 million to 340 million bushels. For the 2026/27 balance sheet, planted area was based on the March Prospective Plantings figure of 84.7 million acres, with a trend yield of 53 bushels per acre, leading to a production estimate of 4.435 billion bushels. On the demand side, crush was projected at 2.75 billion bushels and exports at 1.63 billion bushels, reflecting positive expectations for biodiesel and exports. Demand-side figures were raised compared to the previous marketing year, resulting in ending stocks of 310 million bushels, below the market average expectation of 360 million bushels.
U.S. soybean planting progress and weather conditions are currently normal. The Brazilian soybean harvest is nearly complete, with premiums remaining firm recently. Brazilian soybeans continue to offer the best value among major producers, and their premiums are expected to remain stable to firm, having a limited impact on prices going forward. Market focus is primarily on North America.
Domestic soybean arrivals are gradually increasing, with substantial monthly volumes expected over the next quarter. Significant rises in domestic soybean stocks, crushing volumes, and soymeal inventories are anticipated. Supply pressure persists domestically, weighing on spot prices, though downside appears limited. Domestic soymeal futures have clearly followed cost-side movements. Against the backdrop of firm premiums and strong CBOT soybeans, geopolitical uncertainties provide additional supportive factors. Soya futures are expected to maintain a firm and震荡 pattern.
III. Corn
Domestic corn prices experienced a significant pullback, pressured by expectations of over-aged stockpiled rice releases and the approaching feed substitution pressure from the new wheat harvest. Entering May, the pricing anchor for corn has shifted from its own supply-demand dynamics to being influenced by substitute pricing. Considering uncertainties surrounding new-crop wheat conditions and the volume/price of the over-aged rice releases, coupled with strong support from trade stockpiling costs and a significant increase in new-crop planting costs, the room for further futures price correction is expected to be limited. Short-term support is observed around 2330-2350. A moderately bullish view is maintained for the medium term.
Since March, localized wheat-to-feed substitution has begun domestically. Market attention is on post-harvest wheat price trends, whether the minimum purchase price support mechanism will be reactivated, and the scale of wheat entering feed channels alongside trader purchasing willingness. Regarding wheat conditions, weather risks in mid-to-late May warrant monitoring, including dry, hot winds in Henan and Shandong, and continuous rain in Hubei and Anhui. Based on recent years' fundamentals, wheat's entry into feed channels from June to October is significant, potentially reshaping the valuation of corn futures and spot prices. Furthermore, substantial import substitutes are expected in May-June, with inventory pressure for substitutes at southern ports remaining. Medium-term, new-crop costs in Northeast China have risen sharply, lifting forward valuations. Currently, trade stockpiling costs in the Northeast production region are high, suggesting strong support around 2300-2350. Post-May, market themes to watch include weather premium炒作 during the planting season related to El Niño and broader agricultural commodity inflation expectations.
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