Hog futures were higher on Tuesday on hopes that export sales could be on the mend. There was some talk that export sales interest has picked up after the sharp decline in the prices of key export items and we have no reason to dispute such rumors. For the moment, however, it is precisely the weakness in export markets that has caused a sharp deterioration in hog carcass values.

The IA/MN hog carcass value on Tuesday closed at $58.58 (USDA Wt. Avg.), almost $5 per cwt lower than the previous week and close to $30 per cwt lower than in early August. Ham prices, which normally carry overall hog carcass values in Q4, have fallen sharply compared to summer levels when Mexican and Russian buyers tried to outbid each other and, in the process, caused prices to hit all time highs. Now that the US dollar has suddenly become the currency of choice and credit availability has tightened, foreign buyers have for the most part disappeared, putting increased pressure on domestic demand to clean up supplies.

USDA will release its monthly survey of cold storage stocks on Wednesday, October 22 and one key piece of information will be the supply of boneless and bone-in hams in cold storage as of October 1. Ham cold storage stocks at the end of August were about 5% below year ago but still at relatively high historical levels. Slowing export demand and record hog slaughter for the month of September may have caused packers to put more hams in storage than they wanted to. Buyers with freezer programs will likely be in full liquidation mode, which will also limit overall demand through the end of the year (ham prices normally bottom out right after Christmas).

If ham cold storage stocks match or surpass last year’s excessively large levels, then we could see a further deterioration in ham values and consequently hog prices for the remainder of the year. Which brings us back to the recent rumors regarding increased interest in US pork export sales. At some point, world buyers will again return to the US pork market and current prices are attractive. However, competition this time will be tougher especially given the recent weakness in the value of the Euro and Brazilian Real, currencies of the other top world pork producers.