Clearly the disappointing performance of cash hog prices has poured some cold water on hopes for +$100 hogs this summer. However, futures still continue to trade at a premium to current levels and do not believe that 2011 will see a break similar to what happened in 2010. A few weeks ago, we pointed out that much of the strength in wholesale pork prices came from big gains in the price of pork bellies. In early April, the gains in belly prices accounted for about 55 per cent of the overall gains in the pork cutout even though bellies are just 16 per cent of the carcass. We also noted that for prices to climb higher, as futures were suggesting at that time, other pork items would need to gain in value.

Much of the current disappointment in the market has come from the realization that not only are other cuts not contributing to the overall hog cutout, but that weaker belly prices also are limiting cutout gains. Let’s look at this in a bit more detail. The following chart shows the year over year change in the value of the cutout and then breaks out the contribution of each primal to the cutout price.

On 27 April, the pork cutout was quoted at $92.44/cwt, $3.31 or 3.7 per cent higher than a year ago. On April 6, when we last discussed these numbers, the cutout was valued at $94.59, up $17.3 or 22.4 per cent higher than the previous year. The expected April rally was short lived and today prices are lower than three weeks ago. When you look at the attached chart, note that the year over year change in the value of various primals has been weighted by their relative contribution to the overall carcass. For instance, the belly primal value on Wednesday was quoted at $139.83/cwt, a $21/cwt increase from year ago levels.

As bellies make up about 16 per cent of the overall carcass, this implies that the change in belly prices contributed about $3.37/cwt to the overall cutout value. As a reference, at the beginning of April, the belly primal was valued at $147.75/cwt and it was almost $60/cwt higher than the previous year, thus contributing about $9.48 to the overall cutout. In the most recent reading of wholesale prices, hams continue to be the biggest drag, removing about $2/cwt from the overall cutout.

This is partly due to the fact that Easter this year was one of the latest on record and ham prices tend to bottom out after Easter. It is also the case that the price of other items have not made the contributions needed to justify the lofty hog valuations in the futures market. Demand for most items remains a problem, likely reflecting the negative impact of escalating fuel prices, as well as poor weather conditions in densely populated areas.