1. Vol. 10, No. 234 December 4, 2012
The pork cutout enjoyed a rally last week, raising the
possibility that the low for the fall season has been established. PORK CUTOUT
USDA’s estimated cutout value for 200-lb., 53-54% lean carcasses $/cwt Avg. '06-10 2011 2012
gained 2.9% to average $84.00/cwt. That is still 6% below last year’s 120
$89.32/cwt. A rise in the cutout value is not all that unusual for late
November and, as can be seen in the 2006-2010 average line in the 110
top chart at right, the cutout value usually rises modestly into mid- 100
December.
The usual driver is hams which see a “last hurrah” for the 90
holiday season in late November and early December as processors 80 y
put the finishing touches on ham purchases in order to get them pro-
cessed and shipped by Christmas. This year is no exception with 23- 70
27# ham prices getting very near last year’s level last week. This
60
class of hams has gained $7.20 (about 9%) to reach $82.20 in just two
weeks, traded just marginally below last year’s $82.33 last week and 50
is threatening to put in a new high for 2012. That figure currently J F M A M J J A S O N D
stands at $85.15 back in the first week of August. Ditto all of that
except the favorable comparison to one year ago for 20-23# hams. HAM, BONE-IN, 23-27#
They averaged $82.33 last week, less than $2 below their early Au-
$/cwt Avg. '06-10 2011 2012
gust high of $84.00.
110
What is impressive about this rally is that it is occurring in the
presence of, from all indications, ample ham supplies. Recall that 100
October 31 inventories of frozen hams were, if anything, burdensome.
The 187.9 million pounds of total ham in freezers on that date was 90
40% more than one year ago. In addition, slaughter has run nearly 80
2% larger than expected since mid-October, adding that amount to the
expected NUMBER of hams produced. We must remember, though, 70
that lower carcass weights should have a relatively consistent impact 60
on the weights of all wholesale cuts and this year’s reduction in hog
weights has offset 1.3 to 1.5% of that unexpected 2% increase in ham 50
numbers. Still, any way one cuts it, the conclusion must be that there 40
were plenty of hams to be purchased going into the holiday season J F M A M J J A S O N D
and yet ham prices have rallied and supported a stronger cutout val-
ue. head last week for the first time since January. Spot-priced pigs aver-
About the only thing hotter, in terms of price, in the pork aged $56.18 per head last week, their highest value since mid-
complex is 10-12 pound weaned pigs. Prices for these little guys February. Both prices are significantly higher than one year ago in
hit rock bottom last summer as the selloff in hog futures and the run- spite of expected feed costs that are, by our estimation, about $5/cwt.
up in grain and soybean meal prices created a situation where some carcass (roughly $10/head) higher. What gives?
of these pigs simply had no value. Spot market prices averaged $10 First, the supply of these pigs is considerably tighter than last
per head or lower from late July through early September and there year. As can be seen in the bottom chart on page 2, the number of
were some quotes of $1/head during those weeks. And those prices pigs traded in the spot market each week has been below year-ago
were probably generous if one put a sharp pencil to the profit expecta- levels in almost every week since mid-June and has been significantly
tions. We worried that some healthy pigs would simply be destroyed below last year’s level in most of those weeks. Once lean hogs and
but we never heard any reports of that actually happening. feed ingredient futures pointed to possible profits, there simply have
The passage of time — meaning that pigs would be sold not been as many pigs available, pushing prices higher.
against stronger futures prices for contracts from Feb ‘13 forward — In addition, there are almost certainly empty finishing spaces
the selloff in corn and bean meal futures and the strengthening of lean looking for pigs. Producers’ aggressive — and successful — efforts to
hogs futures have driven pig prices steadily higher since September. reduce seasonal weight increases back in August and September
The top chart on page 2 shows the composite average (ie. includes moved pigs to market early, leaving empty barns. The pork industry
both spot and formula-priced pigs) price as reported by USDA’s Agri- generally pays for contract barns even if pigs are not in them, creating
cultural Marketing Service each week. That price broke above $50/ an incentive to fill them since the costs are sunk.
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2. Vol. 10, No. 234 December 4, 2012
WEANED PIGS, COMPOSITE WTD
AVG
$/head Avg. '06-10 2011 2012
55
50
45
40
y
35
30
25
20
J F M A M J J A S O N D
WEANED PIG SALES -- SPOT
Avg. '06-'10 2011 2012
Thousand Hd.
70
60
50
40
30
20
10
J F M A M J J A S O N D