Spring Hog Price Rally Not in the Cards

May 21, 2012 01:44 AM

By Ron Plain and Scott Brown, University of Missouri

Problems with sovereign debt in Europe have caused both the Euro and stock markets to decline.  The Dow Jones average is the lowest since mid-January.  The weaker Euro has meant a stronger dollar.  The dollar index is the highest since mid-January.  A declining stock market is not good for domestic meat demand.  A strong dollar is not good for meat exports.

USDA says 87% of corn acres had been planted by May 13.  That compares to an average of 66% planted on that date and 56% planted on May 13, 2011.  The Crop Progress report says 46% of the soybean crop was planted by May 13 compared to an average of only 24% on that date. Early planting correlates with above average yields.

Hog prices ended last week higher than the previous Friday.

The live price for 51-52% lean hogs during April averaged $58.99/cwt. That was $2.87 lower than in March and $9.11 lower than April 2011.The average retail price of pork during April was $3.459 per pound. That was down 3.1 cents from March, but up 8.2 cents from April 2011. Normally, April prices are higher than March, so the decline this year is worrisome.

Obviously, with lower hog prices and higher retail prices the farm-to-retail price spread was much wider this April than last.  All of the increase came at the retail level.  Packer margins were 1.4 cents per retail pound smaller this April than in April 2011.

The national average negotiated carcass price for direct delivered hogs on the morning report today was $79.84/cwt, up $5.42 from last Friday.  The eastern corn belt averaged $78.57/cwt this morning.  Both Iowa-Minnesota and the western corn belt reported a morning average of $82.98/cwt.  Peoria had a top today of $56/cwt of live weight and Zumbrota a top of $55/cwt.  The top for interior Missouri live hogs Friday was $56.50/cwt, up 75 cents from the previous Friday.

USDA’s Thursday afternoon calculated cutout value was $82.68/cwt, up $2.56 from the previous Thursday and the highest cutout since March 16.  Loins, bellies, and butts were higher this week, hams lower.  The negotiated hog carcass price this morning is 96.6% of the pork cutout value.  That is above the 92% average.

Hog slaughter totaled 2.116 million head this week, up 1.3% from the week before and up 4.2% compared to the same week last year.  This is the fourth consecutive week with hog slaughter well above the level expected based on the last hog inventory survey.  Barrow and gilt carcass weights for the week ending May 5 averaged 206 pounds,unchanged from the week before but up two pounds from a year ago.  The average barrow and gilt live weight in Iowa-Minnesota last week was 276.5 pounds, down 0.2 pounds from a week earlier, up 5.7 pounds from a year ago, and above a year earlier for the 25th consecutive week.

Higher than expected slaughter, heavy carcass weights and soft demand has dampened the normal spring hog price rally.

Friday’s close for the June lean hog futures contract was $87.42/cwt, up $2.12 from the previous Friday.  The July lean hog futures contract settled at $88.57/cwt, up $3.42 for the week.

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