May 5, 2011

 

US hog prices decrease due to abundant supplies

 

 

US consumers may be relieved from further hikes in pork prices after reports indicated that there were ample supplies on Tuesday (May 3).

 

Hog futures fell to the limit by US$3 per hundredweight to US$92.47 on the Chicago Mercantile Exchange for the May contract on Tuesday (May 3) as hedge funds pulled out of the market.

 

Traders pushed the prices down on Tuesday (May 3) amid evidence that packinghouses spent the winter furiously buying hogs and wholesale pork to ensure good supplies for Easter and the beginning of summer grilling season.

 

"What happened was we had our normal seasonal rally earlier by about 60 days," said Jason Golly of Lynch's Livestock of Waucoma, a major hog dealer in Iowa. "Now the market is back to what was a record price a few months ago and the funds got scared."

 

A trader pointed to evidence of softer consumer demand caused by higher gasoline prices. "Pork products are not moving off the shelf like they have in the past as consumers face higher prices at the pump," he said.

 

Iowa is the nation's largest pork producer, with a hog inventory of just under 19 million animals.

 

Hogs are off their high of US$104 a month ago, but they are still about US$20 higher than last year as the industry struggled to recover from the H1N1 virus scare in 2009.

 

A surplus of hogs and low retail prices caused packers to purchase aggressively in late 2010 and early this year.

 

Analysts continue to worry that hog supplies will remain tight as producers are reluctant to increase production as long as feed corn costs US$7 per bushel, double the price a year ago.

 

Hog prices have weakened after the latest cold storage report from the USDA showed that frozen pork supplies on hand in the nation's freezers was up 12% from the previous year at the end of March.

 

USDA figures show that wholesale pork prices had been increasing by 16% from a year earlier through April. That increase moderated to about an 8% increase by the end of last month.

 

Prices for pork bellies, which are used to make bacon, were up more than 50% in wholesale markets through early April. In the last month, the increase in belly prices had slowed to about 24%.

 

Corn prices continued their two-tiered movement on Tuesday (May 3). The front month May contract decreased by US$0.12 per bushel to US$7.19. Meanwhile the December contract, which prices this year's crop, gained US$0.01 to US$6.62 per bushel.

 

The strength in the December contract underscores traders' worries about the slow progress of corn planting.

 

Only 8% of Iowa's corn crop has been planted through last weekend due to cold and wet weather as compared with almost half planted previously in normal years.

 

A commodity broker noted the worries about the need for a big corn crop this year because of tight domestic stocks. "We need things to go well this year but they are not," he said.