December 7, 2009

Ham price run-up boosts pork cutout but seen topping soon

Fresh ham prices rose sharply this week, providing considerable support for pork carcass values and cash hog prices, but ham prices could hit a seasonal top soon.

The US Department of Agriculture's primal cutout value quote for hams Friday (December 4) afternoon came in at US$72.18 per hundred pounds, up a whopping US$11.29, or 18.5 percent, from a week ago. The latest quote was also up nearly US$14.50 from the year-ago figure.

Historic charts suggest that ham prices are at or near the high for the month and may drop by as much as 15 percent to 20 percent from now through the next two weeks. In the past five years, the USDA's quote for hams at the end of the first full week in December has averaged about US$60.00. By the end of the third week in December, the average price for the five years was at US$48.00, rounded to the nearest dollar. That is a slide of 20 percent.

However, the seasonal drop in ham prices may be tempered by buying interest from international markets, some analysts said. The cheap US dollar has contributed to a rebound in pork exports this autumn. If the export interest for hams remains good, prices may still turn weaker from a reduction in domestic usage but the value might not drop as much as normal, they said.

Since fresh hams make up about 25 percent of the pork carcass by weight, changes in ham prices significantly affect the composite value. A decline of US$10 to US$12 in ham prices could result in a US$2.50 to US$3.00 drop in the pork cutout unless prices of the other cuts rebound to offset the lower ham values.

In recent years, only a small portion of the decline in the carcass value caused by ham has been offset by gains in the other cuts. The cutout has fallen an average of US$2.62 during the same two-week period in December, according to USDA data.

The cash hog market may soften by the middle to last half of next week as well, predicted a veteran livestock dealer in the western Corn Belt. "Most years you can count on the cash [hog] market hitting a wall by the end of the second week [in December]," he said.

Some brokers and analysts predict that, with domestic and Canadian hog supplies expected to be smaller into 2010, there may be better speculative interest from processors in owning frozen bone-in hams and ham muscles for use at Easter and next fall. That could put a higher floor under fresh ham prices than what occurred most of this year, they said.

In addition, if ham sales to international customers remain relatively strong and absorb more of the production, packers may be more aggressive buyers of hogs, which could keep the market from making its usual mid-December dip.
  

Last week's cattle slaughter was estimated at 638,000 head, compared with 530,000 a week ago and 619,000 a year ago. Year-to-date cattle slaughter is down 3.9 percent from a year ago.

The week's hog slaughter estimate was 2.267 million head, compared with 2.047 million a week ago and 2.368 million a year ago. For the year, hog slaughter is off 2.8 percent.
  

The USDA estimated total beef, pork and lamb production for the week at 962.1 million pounds. Last week's holiday-reduced output was 832.2 million pounds, and the year-ago figure was 973.7 million pounds. Year-to-date combined meat output is down 2.5 percent.

Broiler/fryer slaughter for the week was estimated at 160.866 million head, compared with 121.430 million a week ago and 160.358 million a year ago.