Daily Livestock Report
Vol. 8, No. 147 / July 30, 2010
Market Comments
Lean hog futures rose sharply on Thursday on strong
gains in cutout values and optimism that a combination of tighter
supplies and resurgent demand will sustain hog prices for the
remainder of the year. The nearby August contract gained as
much as 147 points while the October and December futures hit
all time contract highs. The charts to the right provide some
indication as to what is underpinning the upward move in hog
futures. The pork cutout on Thursday closed at $89.4 /cwt.,
$3.87/cwt or 5% higher than the week before and $30.3/cwt or
51% higher than during the same time a year ago. The increase
in cutout and hog prices is seasonal but it has been further amplified
by a much tighter supply situation. The spike in prices is
reminiscent of 2008 when cutout and prices for individual pork
items hit all time record highs. Daily prices since mid July have
followed almost exactly the same path as a year ago (see chart)
and the market seems to think that the highs for pork prices
may still be ahead of us. The seasonal increase in prices is being
supported by tighter hog supplies. The chart below shows a running
seven day total of US daily hog slaughter. On Thursday,
the running seven day total stood at 1.949 million head, 7.3%
lower than the comparable time frame a year ago. We currently
estimate hog slaughter on Friday will be around 400,000 head
and Saturday at some 50,000 head. If those estimates are correct,
that would produce a final hog slaughter level for the week
of 2.015 million, 4.2% lower than a year ago. Even more critical
for the market, however, is what happens with hog slaughter
and hog weights in August. As the bottom chart shows, hog
slaughter in 2008 and 2009 rose by more than 100,000 head per
week between the end of July and the end of August. Our current
expectation is for slaughter to continue to track 2.5% to 3%
below year ago levels for the next few weeks but a larger shortfall
will clearly impact a market that already seems to be
stretched. The latest cold storage data showed very tight supplies of bellies (-54% vs. 2009), trimmings (-48.6% vs. 2009) and a
number of other items. Belly prices have escalated sharply in recent days as end users appear to have underestimated the market
and likely liquidated inventories too early. Belly demand tends to taper off at the end of August however. As we move into the
fall, hams will become an even more important component and will need to carry a larger portion of the carcass. Ham prices are
currently trading at some very lofty levels and it remains to be seen how retailers and
