Cattle and hog price continue to trend on two separate paths. While cattle prices continue to post contract highs, hog prices continue to see intense pressure, and it’s creating a dismal outlook for pork profits this year.
“It’s very frustrating,” says Chip Nellinger of Blue Reef Agri-Marketing. “And it’s almost a 180-degree turnaround from what we’re seeing on the beef side. The prices are low enough now that demand, both export demand as well as domestic demand, is very, very strong.”
Demand is strong, but Nellinger says the funds are short and continue to sell every rally, which is only fueling the downward momentum.
“The first problem is the funds, but also on the premium and the deferred contracts. We haven’t been able to see that cash market and cutout see much stability or rally,” he adds.
Nellinger says the second issue adding to the selling pressure is concerns about what California’s Proposition 12 rule will mean for the hog industry. Earlier this month, the hog industry was caught somewhat by surprise when the U.S. Supreme Court upheld California’s new humane-pork law, rejecting an industry challenge in a ruling strengthening the power of states to impose rules that have a broad economic impact on other parts of the country.
“I think there are a lot of fears around this California legislation, and maybe in the short-run, it could mean some sow liquidation and uncertainty about demand out of California,” says Nellinger. “And obviously that’s a massive base of demand for pork.
Nellinger says those factors, in combination with the crumbling cash situation, mean funds are selling every rally. So, while pork prices may see a $2 jump, those gains are quickly erased.
Don Close with Terrain describes the current price spread on retail pork prices versus retail cutout as an “incredibly unusual situation.”
“Retail pork prices are softer than they were, but still right at their highs. However, the price spread between retail pork prices and for cutout values is incredibly wide,” says Close.
He adds there’s not a good explanation of why the price spread is so wide today, but cash hogs may be one sign.
“If you take the pressure we’re seeing on poor cutout values, poor packer earnings and the miserable status of cash hog markets, and the pressure producers are under, I think those signs point to us seeing retail pork prices work lower,” says Close.
Close expects to see retail pork prices to retract.
