The nearby April futures contract closed at $69.35/cwt, down 210 points from the previous close. All other contracts also lost ground but the bulk of the decline came in the spring and summer months.

Hog slaughter on Monday was quite light at 385,000 head compared to around 432,000 head that was expected. This was not an isolated event. Slaughter last Thursday also was around 382,000, dragging the total for the week under 2.2 million head.

On page 2 we have included a table that shows daily hog slaughter since 2010 for the weeks before and after Easter Sunday. We also have included our projections for daily slaughter for two weeks. If we are correct, hog slaughter this week could be down about 4% compared to a year ago and it could be down as much as 6% the following week.

The holiday disruptions are not new but they come at the time when the hog contract is about three weeks from expiration. Despite the decline in hog slaughter last week we have seen very limited impact on the value of the pork cutout. Demand for pork bellies has been strong during much of this year and this can be observed in the pork belly primal value, which was up almost $3/cwt on Monday compared to the Friday close. But bellies are about 16% of the carcass and the gains there can only take you so far. We have noted the seasonal tendency for ham values to slump ahead of Easter and this year is no different.

The ham primal value on Monday was quoted at $50.66/cwt, approaching the lows we saw in the first week of the year. So far ham prices this year have behaved quite similar to 2013, another year that had a similar Easter.

One thing that we noticed that year is that ham prices stayed soft through the first week of April but then rallied sharply all the way into June. The difference this year is that pork supplies are materially larger than in 2013. Q2 pork production in 2013 was 5.5 billion pounds compared to almost 6 billion pounds this year.

Exports to Mexico, the biggest buyer of US hams, have ben soft so far and we will need to see a ramp up in shipments to that market to establish a firm uptrend in ham values for the spring and summer. The loin primal accounts for about a quarter of the hog carcass and prices in the last few days have been almost 10% under year ago levels. Lower prices for competing meats, especially lower ground beef prices may prove to be a challenge for pork loins going into Memorial Day.

USDA is expected to release at noon ET on Friday the results of its quarterly Hogs and Pigs survey. As this important report comes more into focus market participants are forced to consider implications of a potentially larger pig crop for Dec-Feb and Mar-May.

USDA will likely revise up its pig crop for Jun-Aug of 2015 in light of the larger slaughter numbers we saw during Dec-Feb. The upward revisions in the pig crop for 2015 should be instructive. Farrowing estimates invariably have been too low and now the question is: if the breeding herd continues to expand and producer margins remain in the black, what kind of pig crop can we pencil in for Mar-May?

Further Reading

You can view the charts and page 2 by clicking here.