CME: Trading Sessions See Nearby Hog Futures Modestly Rebound

US - Nearby hog futures have rebounded modestly in the past two trading sessions as market participants have been buoyed by the continued strength in hog and pork cash markets, write Steve Meyer and Len Steiner.
calendar icon 17 July 2014
clock icon 4 minute read

The IA/MN Lean Hog Carcass price (wt. avg. basis) was quoted last night at $132.18/cwt, modestly lower from the previous day’s close but still up almost $8/cwt (+6.2 per cent) since the end of June.

The packers have been more aggressive in bidding for hogs as overall pork prices have continued to advance. Usually there is a break in pork prices between the last week of June and the middle of July as buyers tend to pull back once they have covered their 4 July needs.

Prices for loins, ribs and pork butts (shoulder) all decline during this time frame. So far, however, there has been no seasonal break in pork prices, with end users aggressively looking to cover their needs for July, August and September.

High beef prices and also relatively high prices for chicken breasts certainly have been supportive of the pork market during this period. Two primals are worth highlighting: loins and hams. The pork cutout, an indexed value of overall wholesale pork prices, was quoted last night at $135.18/cwt, about 35 per cent higher than a year ago and at all time record highs.

Sharply higher ham values have certainly helped support the cutout, with hams contributing the largest share of the gains. We calculate that the gains in the ham primal value has contributed about 39 per cent of the overall increase in the pork cutout even though hams account for about 25 of the carcass.

In previous years, loin prices have lagged other pork cuts, thus limiting overall cutout gains. This year, however, loin prices have surged higher and last night the loin primal value was quoted at $132.95/cwt, up 30 per cent from a year ago and contributing about 23 per cent of the overall gain in the cutout. This is important as loin primal accounts for about a quarter of the overall carcass value.

One item that does not show up in the individual primal calculations but has a significant impact is the value of pork trimmings. The price of 72CL pork trim, a benchmark trim used across a vast number of items using ground pork, last night was quoted at $145.10, up 57 per cent from year ago levels and surpassing the highs established in early April.

High trim prices are especially worth noting as they establish a floor under the value of a number of pork products. High trim credits also underpin the value of all other primals and thus the overall carcass. While current prices are high, pork in a ground form (think hot dogs, sausages, salami, etc) remains a relatively inexpensive protein in the retail meat case.

Prices for ground beef has increased sharply this year and this remains supportive of the overall pork complex. This is particularly the case in July and August, when hog slaughter numbers seasonally decline. The seasonal decline this year has been further exacerbated by the piglet losses that producers sustained due to PEDv during Q1.

Hog slaughter last week was down almost 9 per cent from a year ago and despite heavier hogs, total production was down 4.2 per cent. Going forward, keep an eye on those trim credits as well as loins, which seasonally continue to gain ground into Labor Day.

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