Hog Cutout Value Lifts Prices

Late summer hog prices were surprisingly strong with carcass prices at times exceeding $80 per hundredweight and the live-weight equivalent at $60. The primary reason packers were willing to pay this much for hogs was a very high cutout value. The pork cutout on Aug. 18 was the second highest ever, just one penny below the $94.41 per hundredweight record of Aug. 15, 2008. 

In a large part, the cutout strength was due to record pork belly prices. Retail bacon prices were record high in June and again in July. Meanwhile, ribs have not done well in this recession. During the past 10 years, wholesale pork-rib prices have averaged 43 percent higher than wholesale belly prices, but at times in August, pork-rib prices were more than 20 cents per pound lower than bellies.   


Less Pork in Storage

Reduced pork production and strong exports have made for a tight domestic pork supply. Daily hog slaughter for June and July averaged 4.6 percent below 2009 levels and once final, August will have been down even more.  

With pork exports running 8 percent higher than last year, USDA is forecasting that the 2010 domestic per capita retail pork supply will total only 46.7 pounds, the lowest since 1977. Add in all meats, and the domestic per capita meat supply could be the lowest since 1997. Mid-year cold-storage pork stocks were down 29 percent compared to last year and were the lowest on that date since 2004.


Hog Cycle Points to a Profitable 2011

The hog cycle may not be as dependable as it once was, but it lives on. For most pork producers, the years 1998 and 1999, as  well as 2008 and 2009, represent periods  of absolute financial disaster. U.S. producers lost more than $11 billion during those  four years. 

When graphed together, there is much similarity between those two cycles in terms of average monthly profits for farrow-to-finish producers, as calculated by John Lawrence at Iowa State University. As shown in the graph, if profitability continues to follow the 1997/2002 pattern, pork producers can look forward to another year with good profits in 2011. A much tougher profit situation will folllow in 2012.