August 3, 2010

 

US hog futures peak amid tight supplies

 

 

Hog futures climbed to the highest level in nearly three months as a Midwest heat wave curbs shipments of slaughter-ready pigs, tightening pork supplies and sending pork belly prices to a record.

 

Fresh pork bellies at wholesale reached an all-time high US$1.40 a pound earlier today, up from US$1.3333 at the end of last week and up 29% since the end of June, according to the USDA.

 

Pork prices have soared since mid-July, as high temperatures compound the supply-tightening effects of the industry-wide herd reductions of recent years. Temperatures are expected to approach 90 degrees Fahrenheit in much of the Midwest this week, likely discouraging the shipment of animals to market, traders and analysts say.

 

US hog slaughter totalled 1.949 million heads last week, down 0.3% from the previous week and down 7.3% from the same week in 2009, according to USDA data.

 

On Monday (August 2), August lean hog futures rose 0.975 cent to 86.8 cents a pound, after touching 86.95 cents, the contract's highest price since May 5. October hogs rose 0.525 cent to 79.55 cents a pound, after reaching a life-of-contract high at 80.075 cents.

 

Futures probably have additional upside this week with slaughter expected to lag year-ago levels during the first half of this month, traders and analysts said. August hog futures hit a contract high at 87.35 cents April 23.

 

But signs of a possible market peak are also forming, some observers caution. Cash hog prices fell in major Midwest markets this morning. Additionally, retailers and consumers may start balking at pricier pork, with wholesale cutout values nearing the 21-month highs reached in May.

 

Analysts believe that some retailers may shift their buying toward beef, which has cheapened in recent weeks.

 

In the hog market, analysts said the bidding-up by packers is not likely to last for much longer. High wholesale pork prices are likely to eat-into retailers' margins and cause grocery store features to not look as appealing to still tight-fisted consumers.

 

Wholesale pork carcass cutout values averaged 89.82 cents a pound July 30, up 11% since mid-July, according to USDA data. The price reached 91.81 cents in mid-May.

 

Futures traders expect lower hog prices by the end of this year, with December futures closing near 75.65 cents a pound today after reaching a contract high at 76.15 cents.