How long will high hog prices last? A sharp decline in the pork cutout on Tuesday has raised a few questions this week.
“There was a belief, hope or guessing, that high prices would persist into fall. The break in futures a few days was blamed on speculators but then came the sharp decline in the cutout yesterday. Maybe those longs were right to be nervous, and could not jump ship fast enough,” Steiner Consulting said in the Daily Livestock Report.
Although they still think pork demand is in good shape, the challenge remains that supplies will increase going into fall as they do every year.
“Seasoned market participants have seen this movie way too many times. The decline in wholesale prices last night had nothing to do with speculators, rather it was packers having to discount product to keep it moving. Sell it or smell it was true 30 years ago and it is still true today,” Steiner Consulting wrote.
It’s no coincidence that the price decline on Aug. 23 followed a higher-than-expected slaughter last week at 2.395 million head and the likelihood of hog slaughter this week reaching 2.42 million head, they said.
“The risk in the hog market all along was that prices peaked in early August rather than early July. This means that by the time buyers reacted to high prices, slaughter would be seasonally higher,” Steiner Consulting said.
The pork cutout peaked on Aug. 2 at $131/cwt but since then it has dropped 20%. A big chunk of that decline happened yesterday, with the cutout down $12.50/cwt or 11% from the previous day.
Lower belly prices have been the main contributor to the decline in the cutout, Steiner Consulting said. The belly primal last night was quoted at $150/cwt, 38% lower than it was on Aug. 2. Bellies have contributed $14.50/cwt to the overall decline in the cutout.
“Last night the belly primal dropped a stunning $48/cwt but, hard as that is to believe, it is not unprecedented,” Steiner Consulting wrote. “At some point retail ads are done, which affects the retail pull. Processors are looking at holiday shortened production in a couple of weeks and they are more interested in cashing out of their inventories, especially after the recent break in futures.”
Inventory of bellies in cold storage at the end of July was 42.4 million pounds, 53% higher than the limited supply a year ago but 19% higher than the five-year average, the article said.
Hog supplies are likely to be lower this fall than a year ago, but Steiner projects weekly kill by mid-September could be as high as 2.5 million head. Hog weights are starting to trend up. Cooler temperatures will also help improve performance.
“If producers stay aggressive in marketing hogs and stay ahead of the seasonal gains in weights, then they stand a good chance to get higher prices for their hogs than they did a year ago. It’s times like this when good risk management programs pay for themselves,” Steiner Consulting said.
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