Mixed Views On Whether US Pork Cutout Can Retest Mid-May Top

by 5m Editor
15 July 2004, at 12:00am

US - Market analysts and agricultural economists hold mixed views on whether the wholesale pork carcass composite value will retest its multi-year high hit mid-May.

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The composite value, commonly called the pork cutout, reached $87.88 per hundredweight on May 17. That was the highest the cutout has been in the history of the latest series since the U.S. Department of Agriculture adjusted the way the cutout value is calculated.

The USDA's wholesale pork carcass value fell about $10 during the 10-day period following May 17 but it has rebounded about $6 of that since. In Monday afternoon's report, the cutout was quoted at $83.54, but back-to-back lower days put the figure at $82.16 on Wednesday.

Dan Vaught, analyst with A.G. Edwards & Sons, said he believes there "is a decent chance" that the pork cutout could rally to challenge the May 17 high. He said if this too occurs, then at least part of the increase would have to come from fresh belly prices.

There has been "surprising resiliency" in the fresh belly market throughout the year, Vaught said. Demand has remained strong leading up to the bacon-lettuce-tomato season, a period in which demand typically is at its strongest. Also, end-May frozen belly stocks were the lowest on record for that date, and Vaught estimates frozen stocks at the end of June at 33 million pounds, which also would be a record low for that date.

This might be enough to push fresh belly prices up further and possibly result in the pork cutout value moving up through the $87.88 level, Vaught said.

Joe Kropf, livestock market analyst with Kropf & Love Consulting, agrees that there is a reasonable chance that cutouts could rise through the May 17 mark. He said that normally, he would not think prices would rally that much at this time of the year as seasonal and fundamental factors suggest it would not happen. However, Kropf said pork demand "has been so strong that I cannot rule it out."

Kropf said there has been some slowing of domestic pork sales recently but added that consumption normally slows during the hot days of summer so it was not much of a concern.

Ron Plain, agricultural economist at the University of Missouri, says the odds are high that the figure reached on May 17 will hold. Prices could rally from the current level but likely will fall short of the $87.88 reached in May, he said. However, if weather conditions turn very hot and are sustained for a period, then the rate of gain and hog movements could slow enough to tighten pork supplies and push pork prices up, Plain said.

Wildcards that could affect wholesale pork prices include the ongoing import bans on U.S. beef by most of the nation's trading partners plus the U.S. ban on imports of Canadian cattle. It appears unlikely that any of these bans could be lifted in time to affect pork prices this summer before hog supplies begin a seasonal increase this fall.

Another wildcard is the U.S. cattle market. Vaught said if there is a breakdown in cattle prices, then that could spillover into the pork complex and pull prices down there as well.

A third wildcard is fresh ham prices, which have been extremely strong throughout most of this year. Vaught said there has been "phenomenal demand" for hams in the export markets but added that prices might be due to a setback soon. If that occurs, it could weigh on the carcass composite value and make it more difficult to take out the May 17 high.

Source: eFeedLink - 15th July 2004

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