It's not often that pork producers get three chances to catch the boat to profits, and, the quality of the cruise ship gets better with each opportunity.

That appears to be the case with Chicago Mercantile Exchange (CME) Lean Hogs futures at present, however, as contracts made lifetime highs across the board last week. From a technical standpoint, this week's trading has done nothing to suggest the rally is over even though prices have fallen slightly. The eight contracts that cover the next 12 months had an average price of $64.33/cwt. carcass ($48.27/cwt. live) as of Wednesday's close.

My concern all of this year has been whether good opportunities would arise to sell 2007 output. Hog futures usually provide good pricing opportunities early in the year of a cyclical low. Such was the case early in 1994 and 1998. It's the next year that never sees a good pricing opportunity.

The cyclical low that I have long expected for this fall would have dragged futures down with it and any expansion in output would have made pricing next year a real challenge. It is legitimate to ask whether this cyclical low has already happened (see Figure 1). This late-summer rally and what appears to be a strengthening of demand at the wholesale and farm levels has me wondering -- at least a little bit.

The price decline from mid-August to the fall low was roughly $13.50 in 1988 and 2004. The declines of 1994 and 1998 were $20.68 and $34.39, respectively, but one could argue that both of those were overdone due to extremely high slaughter capacity utilization.

Should prices decline $13 from last week's level, they will lack about $2/cwt. taking out this year's low-to-date of $52.93 back in mid-April. Seasonal pressure on hog prices is an extremely strong force, though. I still think we will set a cyclical low this fall, which would put prices in the low $50s on a carcass weight basis at some point.

Crop Report Good News

Last week's crop report, if it is remotely accurate, means that feed cost will not get out of hand this crop year. And big crops usually get bigger.

Lower soybean meal prices will offset a good portion of the higher cost of corn, so these Lean Hogs futures prices certainly appear profitable for average or better producers from a cost and efficiency standpoint.

Retail Prices Strong

USDA released its monthly retail price data this week and it showed a continuing increase in retail pork prices. That is a good thing in my mind. University of Missouri economist Ron Plain pointed out in his weekly Swine Economics Report last week, that higher exports this year have used up all of our higher pork production, plus some, thus leaving the amount of pork available for domestic consumption lower. If that is the case, retail prices should rise if demand is stable or rising. Such had not been the case in any month this year -- until July when the average price was $2.842/retail pound versus $2.840 last year.

That increase is certainly not enough to conclude that demand is higher, but it is an improvement. The lag in retail price change is no surprise either. Figure 2 shows the data for the past two years and demonstrates the stability of retail prices relative to farm and wholesale values. Note that the last two values are stated on a retail weight basis to make them directly comparable to the retail price.

This summer's increase in farm and wholesale values is just now being reflected in higher retail prices.

Canadian Pig Crop Report

Statistics Canada released its quarterly estimates of hog numbers this week and they show a continued slow decline in the country's breeding herd and total hog numbers.

The breeding herd was 0.4% lower than one year ago -- the third straight quarter of decline after a decade of growth.

Total market hog numbers were 3.3% lower than last year, largely driven by much higher death losses. Q2-06 death losses were estimated to be 27% higher than the same period last year and almost double those of Q2-04. Canada's pig crop was still 1.8% larger in Q2-06 than one year ago. Canadian producers expect to farrow 0.7% more litters in Q3 and 1.9% fewer litters in Q4.