Lean hog futures posted strong gains on Thursday as the market was buoyed by reports of higher pork wholesale prices and strong export demand.

The total pork cutout value closed on Thursday at $88.23 /cwt, 23.9% higher than a year ago and the highest pork cutout value on record, surpassing the high of $87.88 established in May of 2004. Pork cutout values have not been in the high 80s since 2004, the year that signaled the start of several profitable years for the pork industry.

The situation this year could not be more different than in 2004, however. Back in 2004, high prices and steady growth in production caused monthly producer returns to be as high as $40 per head. This year, a weak US currency and better demand for some pork items at retail has helped boost pork prices but producer returns remain in the red.

The improvement in pork cutout values has been the result of a broad based increase in prices of various pork primals, which are subsets of the overall hog carcass. In the attached chart, we have shown the year over year increase in primal cutout values and the legend also includes the yields of each primal from the overall carcass. In order to remove some of the noise from using daily values, the attached chart uses a six day moving average. However, for those that would like to see the daily fluctuations, including the actual percentage change for July 31, we have included a second chart on page 2 that does not use a moving average.

As the data shows, ham primal cutout values are currently almost 50% higher than a year ago. This is important as we go into the second half of the year. Strong prices for hams at a time when pork supplies are running significantly higher than a year ago bode well for the hog and pork markets later this fall. Seasonally, US domestic ham demand into September and October improves dramatically as retailers prepare for the Thanksgiving and Christmas holidays. If export demand holds up, and that is always a big if, the boost in domestic demand would provide further support for ham prices and consequently lean hog carcass prices. Prices for pork trimmings and loins also are notably higher than a year ago, which should further support hog prices this fall and helps explain why the market still puts October and December lean hog values in the mid 70s, despite expectations of record slaughter.