The spring rally in the hog market has been very strong the past five years, from the last week of March through the third week of May, becoming the strongest seasonal rally of the year, according to Chris Hurt, Purdue University Extension agricultural economist.
This year’s counter-seasonal price movement has caused the anticipated spring rally to fizzle. Hurt suggests three reasons that contributed to the tailspin:
Lean Finely Textured Beef hit the media in early to mid-March, collapsing beef futures prices and pork futures were taken along for the ride. This followed with the April 24 announcement of the discovery of the fourth cow infected with bovine spongiform encephalopathy (BSE). This again dropped cattle futures and June Lean Hogs slipped from near $100 to under $84 by May 4.
Pork supplies have increased since the first of April. “The hog slaughter in the first quarter was up only 0.6% and total pork production was up just 0.7%. But starting in the first week of April through May 12, the number of head slaughtered has been up 3.6% from a year ago and the weights have been up 0.7% for a 4.3% greater pork supply. So, since the first of April, the 2-3% higher pork production compared to expectations should have slowed the spring price increase, but not reversed it. So this is not the only reason for the failure of a price rally,” Hurt explains.
Retail pork prices through April have remained at record high levels. This year the January to April retail pork price was $3.48/pound compared to $3.31/pound for the same period in 2011. “This was a 5% higher pork price with somewhat greater pork supplies,” he says. For April, retail prices stayed at record high levels, yet farmer prices have come down. “This means that the retail margin appears to have widened this spring, which slows down consumption.” As retailers have the opportunity to bring retail pork prices down somewhat in the coming months, product should move better and return more of the profit margin back to the producer.
With retail margins softening, Hurt projects a recovery in Lean Hog prices from the current $74-75 area, moving upward to $85-86 in mid-to-late June, offering producers a “delayed spring price rally.”