ShapeShapeauthorShapechevroncrossShapeShapeShapeGrouphamburgerhomeGroupmagnifyShapeShapeShaperssShape

CME: Steady Retreat in Hog Prices

by 5m Editor
29 July 2009, at 11:02am

US - CME lean hog futures took another step lower on Tuesday as the market was clearly worried about the impact of higher hog slaughter rates on pork prices, according to CME's Daily Livestock Report for 28 July.

Hog slaughter on Monday was 418,000 head and on Tuesday it was 422,000 head. At this pace, we could see hog slaughter for the week at around 2.1 million head, likely above the 2.093 million head slaughtered in the comparable week a year ago. And once we add to the larger hog numbers the heavier hog weights, likely +3 pounds over year ago, we could see pork production for this week up about 13 million pounds or 2 per cent compared to a year ago. The cutout rally of the last two weeks saw pork production down about 7 per cent from year ago levels. As we pointed out last week, there was some hope that the rally in the pork cutout would help boost hog values. But in order for the rally to be sustained, it needs to be driven either by a meaningful reduction in supplies or a notable demand boost. It does not appear that any of these factors were behind the recent up move.

There was no real reduction in supplies, packers simply reduced kills for a few days, only delaying when hogs would come to market and in the process causing them to put on a few more pounds and boosting supplies down the road. As for demand, it appears that there has been no perceptible shift, maybe exports are somewhat better than they were in late April and May but still way off from year ago levels. USDA pegged the pork cutout on Tuesday at $62.04, $2.11 lower than the Monday close and $4.66 lower than the week before.

The steady retreat in hog prices has generated much talk as to where the industry needs to be with regard to the size of the breeding herd and pork supplies down the road. Back in June there was talk about a sow herd retirement program, similar to what dairy producers are doing, but that initiative fizzled quickly. Then there was the announcement by Tyson that it would remove some 20,000 sows, which also seemed to buoy markets. Despite all the talk, the monthly sow slaughter data paint a somewhat less bullish picture.

Sow slaughter in June remained below year ago levels and in the first six months of 2009 US producers have slaughtered some 224,000 fewer sows than they did in the first half of 2008. And based on weekly slaughter data for July, we will likely see July sow slaughter also lower than year ago levels. So while there is much talk about liquidation and tighter supplies down the road, it will be difficult to accomplish that goal if production units do not decline and productivity gains continue.