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Hog prices rely on Japan

05/05/2011 @ 9:44am

U.S. hog farmers are not getting rich this year, much like last year. But late summer/early fall prices may allow them to hold their own, one livestock analyst says.

Although weaker domestic pork demand could pressure hog prices, expected strong export demand is seen as price-supportive, says Bob Short, PFGBest.com senior livestock analyst. “An increase in demand could push cash hog prices to a range of $60 to $62 per hundredweight in August,” he says.

Seasonal factors

Seasonally, the hog market runs up into August. At that point, the hog kills go up, while the pork products weaken.

For instance, the loin business starts to go lower. As the loin product prices fall away, so do the bellies prices. That's because the BLT season is ending.

Ultimately, the hog market will correct itself in late-August into September-October, Short says.

“In November, we could see hog prices, on a live per hundredweight basis, dip between $53 to $55,” he says.

A seasonal indicator for the cash hog prices is the favorite trade on the futures market, Short says. “In August, traders like to be long the August futures contract and short the October contract.”

Japan demand

The single biggest market factor going forward will be the amount of pork purchased by Japan, Short says.

In 2010, Japan bought 1.3 billion pounds of U.S. pork. The market has been trying to assess how Japan's consumer would recover from this year's devastating earthquake, tsunami and nuclear crisis.

“This is the wildcard for the hog market. Are we going to ship Japan 25% of all of our pork exports again this year, repeating last year's performance? They have the capacity to handle that much. It just depends on the country's recovery.”

Keep in mind, the region of Japan hit hard by the nuclear fallout produces hogs. The questions raised include whether those hogs were exposed to radioactivity. “That region raises pork, poultry, beef, and mixed grains. So the futures market will anticipate the impact from nuclear activity on the hog market,” Short says.

Fund support

If the stock indices stay strong this summer, the hog futures market could see another boost of buying from the funds investment group.

“So, if you put Japan demand and outside fund investing together, that should take the cash hog market into the mid-$60's to high $60's. That should make farmers happy,” Short says.

Bearish sentiment

This year, the U.S. industry has stored more pork into freezers vs. a year ago, indicating a downturn in domestic demand. With hog kills strong and only steady exports, this has market watchers becoming increasingly concerned about an overload of supply.

The total number of hogs on feed is 5% over last year, setting the market up for plenty of supply.

Furthermore, the U.S. beef wholesale and retail prices this year hit an all-time record-high level. Pork wholesale prices hit a record-high level; retail prices are just under all-time highs.

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