1. Vol. 10, No. 144 / July 25, 2012
Market Comments
s pread
$/cwt
Pork Cutout Value Minus Lean Hog Carcass Price
Difference in Price of Pork Cutout vs. Price Of Lean Hog Carcass, Daily Values, USDA
25
Jul y
Lean hog futures rose sharply on Wednesday as 20
s ha ded in
bl ue
market participants were buoyed by reports of higher
wholesale pork prices. The nearby CME August Lean Hog 15
contract closed at $94.55/cwt, $1.625/cwt higher than the previous
close. October and December also added $2.175 and $2.250, re- 10
spectively. US pork packers have been on the defensive for much
5
of this year as wholesale pork prices have languished. The meat
margin, which has been in negative territory for much of the year, 0
was particularly poor in early July (see chart). In the week after
July 4th, the meat margin (difference between cutout and price -5
paid for hogs) averaged some $8/cwt or around $16/head. While
-10
pork prices tend to be a bit softer after July 4th, the seasonal
weakness was compounded by a heat wave that blanketed the -15
country. As a result, packers were forced to sharply cut back on 2006 2007 2008 2009 2010 2011 2012
the number of hogs sent to slaughter. Hog slaughter for the week
ending July 14 was down 3% from the previous year and it was Y/Y Change in Pork Primal & Cutout, $/CWT
down 1.5% for the week ending July 21.
Pork Cutout (9.66)
The slaughter cutbacks appear to have brought some
balance to the wholesale pork market. Still, overall pork prices
remain notably weaker than a year ago. The pork cutout is cur-
rently running almost $10/cwt (-9%) below year ago levels. The Ham (1.66)
attached chart shows the contribution of the various primals to Rib (1.26)
the overall cutout. With the exception of the pork belly primal,
which is slightly higher than a year ago, the rest of the carcass Picnic (0.79)
remains weak. The loin primal, which accounts for about 25% of Butt (1.21)
the carcass is responsible for almost half of the year over year
decline in the value of the cutout. This may be partly due to the Loin (4.77)
fact that retailers were very aggressive in featuring loins at the Bellies 0.32
start of the grilling season and now have diversified away from
them. Also, with much of the country baking in the summer heat, Other (0.29)
demand for loins may have taken a hit. Currently the loin primal $/cwt (12.00) (10.00) (8.00) (6.00) (4.00) (2.00) - 2.00
is down about 15% from a year ago. Ham values have been steady
in June and July and they are currently down 8% from a year ago.
the deli case where hams compete directly with turkey breast.
This is an important item that bears watching. After September,
Turkey producers are in the midst of a major realignment. Fol-
there is normally a shift in the contribution of primals to the cut-
lowing strong profits last year, many turkey producers acceler-
out. Pork bellies tend to be firm in July and August but then they
ated growth and also shifted towards bringing heavier pro-
quickly lose steam and prices pull back sharply. The loss in the
cessing tom turkeys to market. As a result, the price of turkey
value of the bellies is then replaced by higher prices paid for hams
breast has been counterseasonally slower for much of the spring
as retailers prepare for the year end holidays. Ham prices could
and summer. The latest data shows turkey breast prices down
be negatively impacted by the sharp decline in the price of turkey
some 26% from a year ago. Weak turkey prices are a negative
breast (but not whole turkeys). This is particularly important for
for hams this fall.
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