March 27, 2009

A steep break in wholesale pork prices Wednesday (March 26) retraced nearly half of the US$5.05 per hundredweight gains that had been accumulated during the past 2 1/2 weeks, boosting market uncertainty.

 

Prior to the US$2.45 decline in the pork carcass composite value at midweek, some market analysts and traders held opinions that the recent advances might be a signal of an early start to the normal spring rally. From March 6 through Tuesday, wholesale pork prices had advanced 9.1 percent.

 

Wholesale prices for most meat and poultry cuts languished at relatively low levels throughout the winter. On Dec. 30, the US Department of Agriculture's pork cutout value hit nearly a six-year low and by early March was back within 77 cents of the December low. USDA's choice beef price quote hit a 3 1/2-year low on February 27.

 

The economic crisis and slowed export sales have contributed to the stagnation in wholesale meat prices, analysts said. Consumers are dining out less, and tightened food budgets caused some consumers to switch to cheaper cuts of meat or reduce their purchases overall.

 

In February, the USDA's pork cutout value averaged 7 percent below a year ago. The cutout advanced in March against year-ago prices. By early this week, prices were up 6.5 percent from the same period in 2008.

 

After struggling through slow sales during February and most of March, grocers and meat packers alike have been awaiting the start of the grilling season in hopes that shoppers will be more willing to spend additional food dollars on steaks, chops and spareribs to cook in the backyard.

 

Based on the market signals from this week, it looks like the supermarkets and meat suppliers may have to wait a little longer for the seasonal demand to pick up, analysts said.

 

Bob Brown, private analyst in Edmond, Okla., said in assessing historic prices of all pork cuts, "bellies are US$20 (per hundredweight) over last year, which accounts for most, if not all, of the gain in the cutout from year-ago. Also, last year this week was the low for bellies, loins and butts in particular," Brown said. "Those three went almost vertical from here a year ago. I'm not sure we can expect that this year," he said.

 

Brown also said if North American slaughter-ready hog supplies decline in the second quarter by the 8.4 percent that he is forecasting, compared with the January-March period, then the price move upward might be similar with last year.

 

Dave Bauer, owner/analyst at BriteFutures in Cedarburg, Wisc., said his five-year charts on pork cutout prices show a steep rally that normally begins around the 13th week of the year, or end of March into early April. During the following six weeks, the chart shows the pork cutout rising approximately US$20 or more. Hog prices tend to follow a similar upward trend, he said.

 

Opinions vary among analysts and brokers for the near-term direction in the pork cutout. Some contend that Wednesday's hefty price break was overdone and due mainly to "distressed" sales of close-coded products. They predict that prices may rebound soon. Others said some pork cuts remain under price pressure for now because of slow late-month demand, which could result in further weakness for the carcass cutout value as the week draws to a close.