The pork cutout closed on Thursday at $81.30/cwt, $5.66/cwt or 7% lower than the previous week and $7.13/cwt or 8% lower than a year ago. The decline in pork prices is not due to a sudden surge in pork supplies although overall pork output has increased compared to summer levels as is always the case this time of year. Weekly hog slaughter actually appeared to peak in early September when producers rushed as many hogs to market as they could once corn values hit $8/cwt and soybean meal pushed past $500/ton. Since then hog slaughter has drifted slightly lower but still remains about 1.3% above year ago levels (last seven day total). Hog weights also have seasonally increased compared to late July and early August contributing to the normal seasonal increase in pork output in Q4. But the seasonal increase is not large as last year, when hog carcass weights in mid November were hovering around 208 pounds per carcass compared to around 206 lb./carcass today.

So what to make of the sharp reversal in recent days? In large part we think the pullback reflects the impact of slowing purchases of seasonal items, such as hams. The composite ham cutout closed on Thursday at $62/cwt, a whopping $11/cwt or 15% lower than the previous week. This decline in the ham cutout alone accounted for about half of the decline in pork cutout values from last week. Ham values are currently down about $16/cwt or 21% from last year. Normally by now most retailers are done with ham purchases for the holidays, with only some fill in business left.

While we will have to wait for the export data, it is likely that the flurry of Mexican orders has slowed down following the rapid price appreciation between early September and late October. Ham prices also likely were negatively impacted by the large supply of hams already in the freezer. The expectation was for prices to soften going into Thanksgiving and Christmas as end users worked those inventories down. That seems to be happening at this time. Also negative for pork prices in recent days has been the pullback in belly values. It has been the only item that has shown some strength compared to last year. Indeed, the belly cutout still is about 13% higher than a year ago but it declined almost $10/cwt or 7% from the previous week. The decline in belly values accounted for about a third of the reduction in the pork cutout value compared to last week. Belly prices remain firm but they likely ran into some resistance once they crossed the $130/cwt threshold, especially from those looking to put some bellies into the freezer. While end users remain worried about the price of bellies next spring, prices simply became too expensive to put away. Finally, the decline in the price of pork trimmings negatively impacted most primals and eventually the cutout. The price of 72CL pork trim declined about $9/cwt or 13% from the previous week while the price of 42CL trim was down 11% from last week.

Bottom line: It is not unusual for pork prices to soften in late November and December as seasonal demand wanes once holiday purchases are completed, end users work down inventories while at the same time weekly slaughter hits some of the highest levels for the year. We are at that point today