CME: Wind Taken Off Booming Pork Market's Sails

US - CME's Daily Livestock Report for 9th September 2008.
calendar icon 10 September 2008
clock icon 4 minute read

In the link at the bottom of the page, a special CME report on Country of Origin Labeling Requirements and resulting changes to CME Live Cattle futures has been included.

Lean hog futures traded sharply lower on the day on Tuesday, with the nearby October contract down 195 points and the entire complex deep in the red. It has been a rough couple of months for hog futures but recent declines have many market watchers particularly worried about the price outlook for Q4, when supplies are expected to surpass the all time record output from a year ago. For much of July and early August, deferred futures were repeatedly beaten down by the drop in corn prices. However, a booming export market provided much needed support for Q4 contracts, which as late as a month ago were still trading between $75 - $80. But things have taken a decidedly negative turn in recent weeks, as the attached chart shows. Wholesale pork cutout values, which hit an all time high of $94.41 on August 15, have since then declined by $18.8 or 20%. With sharply lower wholesale pork prices, pork packers have steadily lowered their bids for hogs in the cash market.

There is plenty of talk in the market that lower export sales have taken some of the wind off the sails of the booming pork market. Seasonally pork prices decline into the fall but the rapid descent lends credence to all the talk about cooling exports. The unfortunate fact is that there is very little official data to back up the argument or allow us to assess the true impact of a slowdown in exports. The USDA weekly export sales monitoring system covers grains and beef but not pork or chicken. This is mostly due to the history of the program, which was set up in the early 1970 in order to better monitor grain export sales and avoid a depletion of domestic stocks. Pork has become a big export market in the last 15 years and it makes a lot of sense to us that USDA start to track those shipments. We do not know enough about what it would take for USDA to include pork in its weekly export tracking system but suspect that it’s a long process (likely involving a Congressional mandate) and thus not likely to come down the pipe any time soon. In the meantime, we are seeing some economists bring back their forecasts from early in the year looking for lean hog values below the $60 threshold. If true, we suspect those sow prices, which recovered so spectacularly in August, may be heading back down again following a new round of liquidation.

Further Reading

- You can view the full report by clicking here.
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