July 13, 2009

Midweek strength in pork prices gave hog traders and market analysts hope that some short-covering in the product market would lead to support for sagging hog prices.

 

The US Department of Agriculture's pork carcass composite quote, commonly known as the cutout value, rose sharply Wednesday (July 8) and Thursday as buyers came in to cover short positions.

 

The short covering was linked to reductions in slaughter rates and then to ideas supply restraints would support prices at or near lows not seen since 2003. So, since prices likely wouldn't get much lower, buyers came to the front, the analysts said.

 

Some thought the buying interest could spark some extra interest in featuring pork in coming weeks just because the wholesale price had gotten so attractive and wasn't likely to decline much more. There was some evidence this was part of the buying since butts traded in large volumes Wednesday after talk of production cuts circulated in the market, said Bill Smith, market analyst for Urner Barry's Yellow Sheet.

 

That buying tended to level wholesale prices at the time, but there still are ample supplies in the coolers, so the market isn't out of the woods yet, Smith said.

 

Another market analyst pointed out that it took a "drastic" cut in slaughter to move the cutout to its highest point since May 29 at US$58.89. Slaughter this week was expected to be down 8.5 percent from a year go for the lowest non-holiday week since the week of Aug. 7, 2007, he said.

 

It was good to see the pork cutout move higher, the analyst said, but it took a very large slaughter cut to get the job done.

 

Troy Vetterkind, director of livestock analysis and trading for Vetterkind Cattle Brokerage, said he didn't think any extra pork purchases brought on through the short covering would be at the expense of beef. Most of the strength in Thursday's pork cutout was in hams and bellies, he said, indicating the buying interest was on holiday hams at the cheapest prices many had seen in years, and on bellies for the BLT season.

 

In the beef market, though, middle meats remain weak as buyers keep close tabs on inventories as consumers watch their spending, Vetterkind said. End cuts continued to show strength as buyers focused on products that could be sent to the grinders at the lowest costs.

 

This week's cattle slaughter was estimated at 628,000 head, compared with 628,000 a week ago and 699,000 a year ago. Year-to-date cattle slaughter is down 5.0 percent from a year ago.

 

The week's hog slaughter estimate was 1.957 million head, compared with 1.892 million a week ago and 2.157 million a year ago. For the year, hog slaughter is off 3.9 percent.

 

The USDA estimated total beef, pork and lamb production for the week at 883.3 million pounds. Last week's output was 869.8 million pounds, and the year-ago figure was 972.6 million pounds. Year-to-date output is down 3.6 percent.

 

Broiler/fryer slaughter for the week was estimated at 151.850 million head, compared with 161.568 million a week ago and 146.181 million a year ago.