August 21, 2008

 

Pork drop, heavier hogs may point to seasonal market downturn

 

 

The combination of a sharp drop in wholesale pork prices so far this week and heavier hog weights in Iowa/southern Minnesota last week may point to a seasonal downturn in hog prices, analysts and brokers said.

 

The US Department of Agriculture's pork carcass composite value, commonly known as the pork cutout, has fallen US$2.29 per hundredweight from the record high of US$94.41 hit last Friday (August 15). Most of the loss occurred Tuesday and came mainly in belly prices, but all other cuts except spareribs were also weaker.

 

The USDA early Wednesday reported average weights for barrows and gilts in Iowa/southern Minnesota last week at 258.4 pounds, up 1.0 pound from the previous week. While the latest figure was 2.4 pounds below a year ago, the rise from the previous week indicates that the hogs are either gaining weight faster with the arrival of cooler temperatures or producers have held the hogs on the farms a little longer to take advantage of profitable prices and the recent declines in feed costs.

 

The weaker market signals confirm increased caution expressed among analysts and brokers nearly last week about a likely seasonal downturn in prices soon.

 

Glenn Grimes, agricultural economist at the University of Missouri, said after new records were set in hog slaughter throughout the year as well as in wholesale pork prices just last week, the market is bound to see a seasonal decline into the autumn.

 

The normal seasonal market pattern for August, especially the second half of the month, is lower. Slaughter-ready hog supplies typically begin to expand as the hogs gain weight faster with night-time temperatures in the Midwest turning cooler. The hogs eat more and therefore gain weight faster when temperatures moderate from the hot conditions normally seen in July.

 

Weekly slaughter trends supplied by Bob Brown, private analyst in Edmond, Oklahoma, show that market-ready hog supplies tend to increase by about 10 percent from the beginning of August to the last week of the month. Supplies continue to grow through the early fall to about 15 percent more than the early-August level by the first of November.

 

Dan Vaught, analyst with Wachovia Securities in St. Louis, sees hog and pork prices headed seasonally lower but added that the weight increase last week in Iowa/southern Minnesota "may simply have reflected the start of the usual seasonal rise during late summer and fall." However, as retailers complete their buying for the Labor Day features, considerable pressure could be placed upon wholesale prices for loins, butts and spareribs and therefore on the whole pork complex, he said.

 

Vaught also said he is "less than confident" that recent strength in fresh ham and picnic prices can be sustained, especially with relations between the US and Russia strained. Russia has reportedly been a big buyer of these cuts this summer. Wholesale prices for fresh hams also hit record highs last week. 

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