October 1, 2007

 

Huge US hog slaughters strains distribution, sales, channels

 

 

Record-large weekly hog slaughter rates for September are challenging the ability of the distribution and retail channels to find sales for the extra pork.

 

US federally inspected hog slaughter this week was estimated at 2.223 million head, making this the third consecutive week above 2.2 million head. Each of these three weeks exceeded the previous record for a September week, which was 2.140 million set last year. Until this year, there had been only six weeks in which the slaughter topped 2.2 million. All of those occurred in the final quarter, with five of the six in December and never more than two weeks in any year.

 

For perspective, the latest three weeks' figures have averaged about 94,000 head, or 4.4 percent, above a year ago and 218,000 head, or 10.8 percent, above the same period in 1998. In December of that year, cash hog prices fell to a low of around US$10 per hundredweight on a live basis, levels not seen since the Great Depression.

 

Market analysts said the huge slaughter rates resulted in additional pork being available, and it started coming a few weeks earlier than expected. The extra pork produced during the second week of the month was more readily absorbed since output the first week was reduced due to the Labour Day holiday. However, two more heavy slaughter weeks forced wholesale pork prices down, and on Thursday the US Department of Agriculture's pork carcass composite value hit a 17-month low.

 

Grocers generally plan their weekly promotions from three to six weeks in advance in order to allow them enough time to purchase the products needed and for printing the newspaper inserts. Although extra pork became available, the stores did not have time to adjust their September advertisements.

 

Similarly, bacon and ham processors could not adjust their pre-arranged schedules to absorb all of the additional fresh bellies and hams produced. Therefore, the larger supplies weighed on prices.

 

Retail prices for pork and beef throughout most of the summer ran at or near record-high levels, and analysts said the prices that grocers charge do not change as much or as rapidly as do the wholesale markets. The time lag alone that it takes to adjust prices at the retail end can back up supplies in the wholesale channel when supplies are suddenly expanded.

 

Dan Vaught, analyst with A.G. Edwards & Sons in St. Louis, said that in addition to the huge pork supplies coming from record-large slaughters this summer, slower export sales to Mexico this year have weighed on fresh ham prices.

 

The USDA's primal cutout value for hams Thursday was reported at US$45.79, down 37 percent from the year-ago figure of US$72.51. Ham prices have fallen US$11.74, or 20 percent in the past 10 days.

 

Vaught predicts that after the sharp break in prices this week, the fresh ham market "is probably about as low as it will go" for the autumn and early winter. Hams are probably more attractive now to retailers and processors, so there could be larger orders placed for smoked hams at these price levels, he said. Also, the lower prices may generate more buying interest from Mexico.

 

Demand for fresh hams from ham processors could increase in October since it is closer to the time that the products will be delivered to the stores and sold to consumers. The largest sales of smoked hams occur during the period between Thanksgiving and Christmas and at the Easter season. The hams produced this fall will be used for the November-December holiday sales.

 

Vaught said even if processor demand increases, fresh ham prices may not rebound much if slaughter rates and pork production continue at record-high levels throughout the balance of the year, as is expected.

 

Also, supplies of frozen hams and ham muscles as of August 31 were record large for that date, according to the USDA's latest cold storage data.

 

Bob Brown, private analyst in Edmond, Oklahoma, said ham processors have additional capacity and likely will add to their production in October. "People were caught short-handed when these 2.2-million slaughters showed up," he said.

 

Brown also said this week may be the low for fresh ham prices after the market collapsed from "too many hams coming too fast." He sees a 50-50 chance that this will be the low in ham prices overall for the fall but the average low week for the heavier hams, which are used for producing boneless hams, is the week ending October 27.

 

Predicting ham prices for the fall is more difficult this year because "it's hard to find a recent year's (chart) pattern like this (year)," Brown said.