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CME: High Cattle, Beef Prices Bullish for Pork Market

06 February 2014

US - Lean hog futures were for the most part higher on Tuesday despite the ongoing selloff in the cattle complex, write Steve Meyer and Len Steiner.

While nearby hog futures are well off their highs established last fall, contracts for spring and summer months continue to maintain notable premiums both to the nearby contract and also to where futures were trading a couple of months ago. A number of factors have underpinned hog values in the short term and also supported the outlook for higher prices going into the summer.

  • The pork cutout was quoted last night at $91.52/cwt, up almost $2/cwt in the past five days. The rise in the cutout has come even as pork supplies are notably above year ago levels. Hog slaughter on Monday and Tuesday has been close to 430,000 head, which is a pretty big number for this time of year. In part this is because of production disruptions last week. Still, for the week we project hog slaughter at 2.180 million head, about two per cent higher than a year ago. And with weights up 3.3 per cent, pork production this week is expected to increase by over 5 per cent compared to last year.

  • Hog weights have started to drop. This was expected given how high weights have been to this point but it implies producers and packers are getting more current with their hogs. The incentive is to bring weights up and as producers become more current, higher prices will be needed to maintain hog slaughter levels. Hog slaughter should hold around 2.1 - 2.15 million head per week into March, if the hogs and pigs report was correct. Lower weights are a signal that supplies may be tighter down the road.
  • The number of PEDv cases is increasing and in mid January AASV was reporting well over 200 new cases per week. Last summer we had about a third that amount. The impact of these cases will not be seen until June, which is why June hogs are still hovering around $103. Noone really knows the numbers of pigs lost and the only way we will know is by looking back once the USDA inventory numbers are published.

  • High cattle and beef prices are bullish for the pork market going into the spring. Retailers already are dealing with tremendous sticker shock from record prices of rounds and chucks. Pork is an alternative, especially going into the grilling season. Bacon prices are also lower, which should generate some interest. Already we are seeing ham prices move up as retailers prepare for Easter.

  • There are reports that Russia will once again start buying US pork by late February. This follows Russia announcement that they will stop buying EU pork. Russia relies on imports to cover about 1/3 of their domestic needs and EU accounts for about 60 per cent of imports. In the past Russia has been an important market, especially during the spring and summer. Add this to the list of bullish news for pork.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

ThePigSite News Desk

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