Sagging hog prices are causing a lot of question as to just why it is happening during a typically bullish season that usually supports the sector. Are Americans passing up the meat case in favor of other protein selections? Are cash hog prices causing the softness in futures prices? Maybe it’s a little of both.
“Hog futures are struggling because of developments in the cash market,” says Rich Pottorff, Doane chief economist. “The pork cutout is near the low for the year – below $78. Cash hog prices are at the low for the year - $77.94.” The May lean hog contract traded at $83.20, down 47 1/2 cents on the day, at Noon EDT.
One cannot blame pork exports for the recent softness in hog prices. Pork exports were up in January and February, the latest data available, but Pottorff believes the robust 2012 export level seen thus far may be difficult to sustain. “While exports started the year above 2011 levels, they probably won’t stay there.”
Another piece of the puzzle likely includes China and their efforts to improve their own pork sector. “Last year China bought a lot of U.S. pork to try to hold down their inflation,” Pottorff says. “This year China’s pork sector is recovering and the government is buying pork to support prices there.”
Domestic meat consumption is part of the reason for weakness in the U.S. hog market. Americans have reduced their meat consumption to the lowest levels in twenty years, according to the Chicago tribune. “The real weakness must be in domestic demand,” Pottorff says. “Usually hog prices rise in the April/May period, but there has been no sign of sustained improvement this year. Weekly hog slaughter is down from early in the year – but that has not resulted in higher prices.”
Corn prices ease
Meanwhile, corn prices, which had rallied to highs seen in early April, took a breather early Tuesday. Corn futures on the Chicago Board of Trade were lower on Tuesday as U.S. plantings made rapid progress despite cool weather and rain in some areas, according to Reuters. Soybean and wheat futures also posted losses. The late run-up in prices on Monday may have been overdone which also weighed on the market, traders said.
"There wasn't a good reason for it to rise so sharply late on Monday so it is not a surprise to see it come down again today," one European dealer said. After climbing to a peak of $6.62 on Monday, May corn lost 1.0 percent to $6.53 a bushel by 10 a.m. EDT.