This is the sixth consecutive week that hog slaughter has surpassed 2.3 million head and since the start of March hog slaughter has averaged almost 6 per cent above year ago and slightly above the levels indicated by the 1 March Hog Inventory survey.

Pork production last week was 489.7 million pounds, 6.2 per cent higher than a year ago. In the last four reported weeks, pork production was a total 1.973 billion pounds, almost 120 million pounds (+6.4 per cent) more than the previous year.

While pork exports were excellent in the first three months of the year, it has not been enough in our view to absorb the bulk of this increase. More pork has had to go through domestic channels, which in turn has kept prices in check even as demand generally starts to improve into the spring.

Also we think the sharp spike in the value of pork bellies earlier in the year negatively impacted retail features for the spring and we are now seeing that playing out. The following chart illustrates the effect that the change in the value of various primal has on the overall value of the cutout.

On Friday USDA quoted the value of pork cutout (a weighted average price of all pork cuts sold) at $75.28/cwt, $6/cwt or 7.4 per cent lower than where prices were at the end of February. What accounts for that decline? All of it is due to lower pork belly prices.

The value of the belly primal on Friday was quoted at $122.72/cwt, $38/cwt (-24 per cent) since late February. Since the belly primal accounts for about 16 per cent of the total carcass, the decline in belly prices has subtracted a little over $6/cwt from the cutout value.

Interestingly, prices for other items have been fairly steady since then and also relatively steady compared to a year ago. Indeed, the comparisons to a year ago are quite telling considering the large supplies coming to market .

The loin primal on Friday was $75.47/cwt, 2 per cent lower than a year ago while the ham primal at $55.74/cwt is actually 2 per cent higher than what it was last year. Also positive for the pork market so far has been the performance of pork trimmings and picnics.

Both lean and fat pork trim prices have been above year ago levels to this point, an indication of still very robust demand for hot dogs, sausages and other such items.

The erosion in the value of the pork cutout since late February has negatively impacted packer margins but, in our view, at $37/cwt they still remain in positive territory. Discussion of margins always goes to the assumptions about operating costs but the gross margin calculations show packer margins at this point are almost as good as they were last year and above what we see as needed to break even (between $25-$30 per head).

As a result, packers continue to push as many hogs through as they can, with slaughter last Tuesday at 449,000 head. Slaughter should be near full capacity during this week but we expect a smaller slaughter next Monday because of Easter celebrations.

Last year Easter Sunday was on 27 March and the following Monday hog slaughter was 298,000 head, down from around 434,000 that would have been a normal level. We suspect a shortfall of a similar amount again next Monday but most of it likely will be made up on Saturday. The net effect of the holiday will likely be limited in terms of the weekly slaughter.