August 8, 2011

 

 

The average US pork cut-out value reached US$108.31 on Wednesday (Aug 3), setting the fifth consecutive record daily price as hot weather decreased slaughter weights and rumours of China purchases sustained for more than a week.

 

On the supply side, the lingering hot spell across much of the Midwest has taken its toll. "It's been very hot and hogs don't like that," said a professor of agriculture economics at the University of Missouri Ron Plain.

 

Last week average hog weights were down 6.1 pounds, or 2.3%, from a year ago. Plain said that was the greatest decline since 1996.

 

Also driving prices up, August is also the height of the bacon-lettuce-tomato sandwich season, which has pushed pork belly prices to record levels, noted Plain.

 

On the demand side, rumours persist that China- where high pork prices are leading inflation- has come into the US market for pork While USDA data for June won't be out until next week, some analysts are already crunching the numbers.

 

"Demand has steadily accelerated and our demand index shows a significant acceleration since early June," BB&T Capital Markets analyst Heather Jones wrote in a note to investors. "More recently, speculation of a significant uptick in Chinese (pork) demand has been rampant. We have heard reports of a 250,000 tonne purchase for delivery in the August-January period, which would equate to roughly 5% of production. We understand the purchases have been both muscle meats and split carcasses."

 

Jones says cut-out values support the rumours, as those record prices cannot be fully explained by lighter hog weights due to heat.

 

These factors, along with a slight reduction in processing capacity by Cloverdale Foods closing its Minot, North Dakota plant, could bode well for companies like Smithfield Foods and Tyson Foods, but Jones warned that the China factor is always a volatile one.

 

"If stepped up demand from China is truly the primary driver of the recent surge in pork prices, we wonder as to the sustainability, given its capriciousness as a buyer," she wrote.

 

As for those lightweight hogs, Plain said hogs start gaining weight again fast, once it cools off, but light weights should be expected to continue for the next week or two.

 

Cooler weather is forecast for next week, but as Plain notes, "Pigs don't respond to weather forecasts."