Happy Independence Day!

The futures market is very optimistic about late 2008 and next year. The December lean hog contract settled at $73.90/cwt, $1.63 above the nearby July contract. The April 2009 contract settled at $91.80 today and the June 2009 contract closed at $100.20, the first time any hog contract has traded above $100/cwt.

USDA’s June inventory report had precious little good news for pork producers. Perhaps the most bearish number was the inventory of pigs weighing less than 60 pounds, which was up 3.7% compared to last year. Assuming a 24,000 head per week (30%) decline in imports of Canadian slaughter hogs this fall, the light weight inventory number implies that hog slaughter for the 11 non-holiday weeks during the fourth quarter will need to average within 2% of the largest single week ever. We think hog packers can manage this, barely. If the actual inventory of light weight pigs is greater than USDA’s survey indicates, packers may not be able to keep up with hog runs this fall driving hog prices far below the cutout value.

The report said summer farrowing intentions are down 2% and intentions are to farrow 4% fewer litters this fall. Look for hog slaughter to drop slightly below year ago levels in the first quarter of 2009 and stay down for the next 18-24 months.

Cash hog prices ended the week roughly $3 lower than last Friday. The top price Thursday at Peoria was $44/cwt, Sioux Falls had a $50 top and Zumbrota, MN topped at $49/cwt. The interior Missouri top Thursday was $49.75, down $2.25 for the week. The national weighted average carcass price Thursday morning for negotiated hogs was $68.35/cwt, $3.43 lower than the previous Friday. Regional average prices on Thursday morning were: eastern corn belt $68.14, western corn belt $68.74, and Iowa-Minnesota $68.52/cwt. Hog prices are slightly higher than at this time last year.

USDA’s Wednesday afternoon calculated cutout value was $78.74/cwt, down 97 cents from the previous Thursday. Pork loins were higher, bellies were steady and hams and Boston Butts were lower than the previous week.

Because of the Independence Day holiday, this week’s hog slaughter is light, 1.7 million head, up 3.3% compared to the same week in 2007.

The average carcass weight of barrows and gilts slaughtered the week ending June 21 was 194 pounds, down 1 pound from the week before and 2 pounds lighter than for the same week in 2007. Despite cool weather in the corn belt in recent months, the average carcass weight of barrows and gilts has been below year-ago levels for 9 consecutive weeks.

The July lean hog futures contract ended the week at $72.27/cwt, down $0.93 from last Friday. The August contract settled at $70.95 today, down $1.75 for the week. October closed the week at $69.45/cwt.