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Vol. 11, No. 62 / April 3, 2013
So about that “bearish” Hogs and Pigs report from last FI PORK PRODUCTION
Thursday —- it certainly hasn’t played out that way yet. Prior to Tues-
Avg. '07-'11 2012 2013
day’s overnight session, CME Lean Hogs contracts had pretty much Mil. lbs, carc.
gained value across the board since the release of inventory estimates
525
that were generally higher that expected. Why the positive reaction to
the negative report?
We think it is probably a matter of the hog and pork market 485
crying a collective “Enough!” after a couple of months of decidedly bad
results. June Lean Hogs futures began 2013 at $99 and touched $87 445
on March 20. Cash hogs (national negotiated net price) began the year
at $83, touched $91 in early February and have now retreated into the
405
low $70s. The cutout value has fared even worse, beginning 2013 at
$81, reaching a high of only $86.81 on February 1 and falling to a year-
to-date low of $77.21 on March 28, the day of the latest USDA report. It 365
is not unusual for hog and pork prices to move sideways through March
but this kind of decline is a bit of a surprise, especially relative to expec- 325
tations of higher prices after last summer’s cost run-up. J F M A M J J A S O N D
There are a number of reasons for the struggles and virtually
any of them would not have been a big problem had they occurred in RATIO OF CHOICE BEEF CUTOUT TO
isolation. Put them all together and you have a set of hurdles that the
market has yet been able to clear with any degree of sustained suc- 53-54% LEAN PORK CUTOUT
2.80
cess.
FI pork production has been higher, year-on-year, in 8 of 13 2.60
weeks so far in 2013 and was 1.5% higher for the four weeks that end-
2.40
ed last Friday (basically the month of March) on slaughter that was
2.1% larger. Year-to-date production based on daily data is slightly 2.20
lower than last year but the recent surge of hogs has put cash pork and
hog markets on their heels. o2.00
i
t
a
Demand has, by most measures, been soft and there are sev- R 1.80
eral reasons for it.
1.60
 The self-employment tax increase of January 1 basically clipped
2% off everyone’s incomes so far in 2013 and the reports or re- 1.40
duced consumer traffic and buying have been widespread, even
1.20
hitting “always low prices” Wal-Mart who has long been considered
the retailer that wins when times get tough. 1.00
 Unemployment remains well above 7% even with some steady
2008 2009 2010 2011 2012 2013
gains in total employment. some lift to pork values. That lift could become very strong indeed if
 Per capita disposable income plunged in January to a level lower Choice beef prices ever crack the $200/cwt. barrier and we still believe
than one year ago after very respectable showing in November and that is likely as steer/heifer slaughter totals tighten to reflect the smaller
December — results we believe were due to bonuses paid before feedlot placements of this past winter.
year-end so as not to be subject to the 2% FICA tax increase. And chicken could provide some help as well. In spite of broil-
But there are signs of opportunity. Chief among them, in our er production that is, year-to-date, 3% higher than one year ago, chick-
opinion, is the current under-priced status of pork, especially relative to en prices are near or at record levels. The national composite broiler
beef. As can be seen in the chart at right, the ratio of the Choice beef price has been over $105, a level never before reached, for the past 4
cutout to the 53-54% lean pork cutout reached a new record high of weeks. Boneless skinless breasts are back above $1.50/lb. and leg
2.558 the week of March 16. It has since dropped to 2.454 but that quarters are approaching year-ago levels, likely due to increased inter-
multiple is still larger than any seen prior to last December. Beef is very est from Russia in the absence of U.S. pork and beef imports. Our cal-
expensive compared to pork. We think that means pork will gain fea- culated broiler cutout value moved above $1/lb. last week for the first
ture space as the weather warms and grilling season begins, providing time since August.
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