As we noted in our last report, the earthquake, tsunami and nuclear fallout all will negatively impact prices in the short term and the futures action bore that out. The nearby lean hog contract declined 220 points to close at $85.95/cwt. April futures have lost almost $9/cwt in the last four weeks. Live cattle futures were also down 147.5 points while nearby feeders declined 97.5 points to $129.925.

While the news out of Japan clearly has been the catalyst behind much of the recent bearish action in the livestock complex, a few things are worth noting. In the case of hogs, we have seen prices establish a downward trend for the last four weeks and the Japan story only became a concern in the last few days. April lean hog futures were trading as high as $94/cwt in mid February on speculation that improving seasonal demand for hams, high pork belly prices and generally strong sales of trim and other products would boost cutout values and allow packers to bid higher money for hogs. But to pay for $94 hogs, the cutout likely would have to get to $100 or so. Or we needed to see a sharp pullback in the number of hogs slaughtered and/or a reduction in the weight of hogs coming to market (resulting in a tighter supply).None of those things have happened so far.

As the chart above shows, the cutout has generally held steady for the last few weeks as ham values have failed to generate much upward momentum. Part of the reason is that Easter this year is the latest since 1943. (see chart on page 2 in the link below showing Easter dates since 1900). Such a late Easter provides processors more time to accumulate hams and removes some of the seasonality in price that we normally see in the first two weeks of March.

Then there is the issue of high prices rationing out some demand. While exports in January were very strong, it becomes a bit more difficult to maintain the same export pace with export offers priced off $94/hogs. Finally, we have yet to see much of a slowdown in terms of pork supplies coming to market. For the week ending 11 March, hog slaughter was estimated at 2.154 million head, 0.9 per cent higher than a year ago. And hogs coming to market are not getting any lighter. The latest USDA report noted weights stood at 208 pounds per dressed carcass, about 4 pounds heavier than a year ago and near all time record highs. As a result, pork production last week was 448.3 million pounds, 3.2 per cent LARGER than a year ago. Markets hate uncertainty and the situation in Japan remains precarious, especially following the threat of a large scale nuclear catastrophe. Until a resolution is in sight, things could get worse.