CME: Wholesale Pork Prices Set Firm Tone
US - Lean hog futures rose sharply on Thursday as the futures market was buoyed by reports of firm wholesale pork prices and optimism about domestic and export demand going into the spring, write Steve Meyer and Len Steiner.The nearby February contract gained closed at $79.775, a 175 points gain from the previous close. The June contract closed at 94.025, a new contract high. The chart below has been updated with the latest futures closes, showing the premium that 2011 futures are showing to the record levels of the year that just ended. Particularly interesting are hog futures prices for the second half of the year. The market reflects the expectation that producers have already pressed hard on the brakes and supplies will tighten up considerably in Q3 and Q4 of 2011.

Wholesale pork prices have set a firm tone at the start of this year. The pork cutout closed on Thursday evening at $78.1/cwt., $7.82/cwt. or 11 per cent higher than a year ago. Wholesale prices for a number of items remain well above year ago levels, particularly bellies, butts, hams and trimmings. Ham prices will be particularly important as we go into March and April. Easter this year will be later than normal (24 April). This means that end users will have more time to accumulate Easter hams and the peak in the ham market will develop a couple of weeks later than a year ago. At this time hams are running about 20 per cent over year ago levels, pork butts are up over 30 per cent, spareribs are up 20 per cent and bellies are also over 20 per cent from a year ago.

Another factor seen as supportive for hogs was the announcement that the Obama administration would create a new inspection monitoring regime, which would permit long haul Mexican trucks on US highways. The agreement would lead to the elimination of some Mexican tariffs on US pork, effectively lowering the price of US pork in the Mexican market.