LIVESTOCK MARKETS: Hog prices post largest summer decline in decades

Some hog carcass component values did not mirror summer trends.

Hog prices in the just-completed quarter registered the biggest spring-to-summer quarterly decline in a history dating back to 1980, according to Len Steiner in the “Daily Livestock Report.”

In percentage terms, Steiner said the decline was 12.9% based on Iowa-Minnesota hog carcass prices. In 1998, the spring-to-summer hog price decline, based on this price measure, was 15.2%. The hog price for this summer was $63.68/cwt., compared to $45.57/cwt. in the summer of 1998.

According to the report, pork production this summer was close to 6.1 billion lb., up 140 million lb. from the spring quarter. During the summer of 2015, pork production was slightly less than 6.0 billion lb., an increase of only 30 million lb. from the spring. To compare, Steiner said pork production in the summer of 1998 increased close to 200 million lb. from the spring.

Per capita consumption, on a retail weight basis, was 12.2 lb. this summer versus 12.1 lb. last summer and 12.8 lb. in the summer of 1998.

Hog carcass value bucks trends

According to Steiner, the value of some components of the hog carcass did not mirror hog price trends this summer.

The value of the loin portion of the carcass averaged 84 cents/lb. this summer, which was down 3 cents from the spring. In the summer of 2015, the loin value declined 6 cents from the spring. Given the normal proximity in the grocery store meat case of pork loins relative to beef steaks and ground beef and the weakness in those beef prices, pork loins held their value fairly impressively, Steiner said.

Wholesale ham prices moved up 6 cents/lb. this summer, compared to a 5-cent increase last year.

“The primary culprit out of the array of pork products that support the overall value of the hog carcass appears to be pork bellies, or bacon products,” Steiner said.

The value of the pork belly declined 11 cents/lb. this summer, versus increasing 71 cents last summer. The catalyst for this year's price performance is likely pork belly inventories in cold storage at the beginning of the summer, Steiner noted.

On July 1, frozen belly inventories were 63 million lb., a 50% increase from inventories on July 1, 2015. Belly inventories on July 1, 2014, were 84 million lb., and the value of pork bellies declined 30 cents/lb. from spring to summer. In the summer of 2014, pork production declined 80 million lb. from the spring instead of increasing, as it has in 2015 and 2016, which Steiner said mitigated the impact declining belly values had on hog prices that summer.

Pork belly values in 2015 declined 30 cents from summer to fall, due largely to the high values during the summer and the normal seasonal decline in consumer demand for bacon, according to Steiner. “This year, belly prices start at a rather low value, and additional declines may be small compared to a year ago,” he said. Hog prices during the last quarter of 2015 declined $16/cwt. due, in part, to losses in belly product values. This year, if the summer-to-fall hog price decline turns out be less than a year ago, Steiner said it will likely be because of a relatively steady belly value.

Returns move deeper into red

Monthly estimated farrow-to-finish hog producer returns fell deeper into the red for animals sold in September, according to calculations by Dr. Lee Schulz at Iowa State University. The decrease in September was due to lower slaughter hog prices. Barrows and gilts sold in September showed a loss of $18.41 without adding the value of manure produced. The loss was $15.77 per head after valuing the manure.

Steiner said those are the largest losses for any month since December 2015.

“Producer hog profitability may not improve substantially until the spring of 2017,” he added.

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