Pork prices closed the week on a very strong note, a result of tight pork supplies as well as good demand from both export and domestic markets. The pork cutout for the week was quoted at $72.69/cwt, 4.9 per cent higher than the previous week and 27.2 per cent higher than the comparable week a year ago. This is the highest January cutout value since 2005 and will tend to support hog prices this week. The IA/MN hog carcass price last week was pegged at $65.71/cwt, slightly lower than the week before. However, the cash hog carcass price last Friday traded at a little over $68 and the Monday hog carcass price was quoted at $67 (wt avg. USDA), an indication of the packer’s willingness to raise their bids in light of improving margins.

As to whether the current rally in hogs will be sustained is a matter of debate, however. Much of the strength in the pork market has been a result of sharply higher prices for pork trimmings and very strong ham values. The market for pork loins has been somewhat disappointing but not altogether unexpected given the continued weakness of meat retail at retail markets. The market for pork trim is especially tight and the chart above should give some indication why trim values have become so expensive in recent weeks. Pork production is down sharply in the last two weeks, a result of smaller slaughter due to weather related product flow disruptions and notably lower hog carcass weights. There is some debate as to how many hogs we actually have on the ground. The hog slaughter data since December has not matched up well with the USDA Hogs and Pigs report, even after adjusting for the lower imports of Canadian hogs. Some argue that hogs must be backing up due to the transportation problems across much of the Midwest. If that was the case, however, hog carcass weights would be trending higher and we have seen the opposite, with hog weights for the last reported week unchanged from the week before and down 1.5 per cent vs. last year. But we need another week or two of slaughter before we begin casting too much doubt on the USDA numbers published on 30 December.

Beef production, on the other hand, has been well above year ago levels for much of December and January. Cattle slaughter for the week ending January 16 was 652,000 head, 5.7 per cent higher than a year ago. Part of the reason for the higher cattle slaughter is the increase in the number of cows coming to market. The cow slaughter data is reported with a two week lag but we estimate that since December, US cow slaughter was 37,500 head or 4.6 per cent higher than a year ago, accounting for about a quarter of the overall increase in US cattle slaughter. Steer and heifer slaughter remains the primary driver behind the increase in cattle numbers but, with tighter inventory numbers and lighter weights, beef production likely will drift lower into February and March, thus helping sustain the nascent rally in cattle.

Further Reading

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