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Hog Prices Make Expected Move Higher

Weekly hog slaughter came in a little lower than expected at 2.258 million head. Our estimate from this morning was 2.265. This week’s kill is 4.5% over last year. That is a little higher than the 3.5% gain seen in recent weeks. The pork production total of 480.8 million is 4.6% over last year. There are no real problems with supply at this time.

The monthly Consumer Price Index report was released today. USDA later took its retail level survey findings and released meat prices and price spread data. The retail pork price fell from $3.780 per pound in March to $3.747 in April. This April number is 1.4% under last year. Of interest for us on the hog side was the farmer share of the retail dollar. USDA pegged April hog prices as capturing 20.5% of the total retail dollar. That was down from the 23.3% the month prior. It is also a rebound off the terrible low point in Q4 last year when it was at 16.3%, the lowest since the 1998 industry wipeout.

While we are happy with this minor resurgence in ownership of the dollar, it is still not that great. The five-year period before this saw an average farmer share of 27.5%. Some might question our use of the five-year average as that includes those record hog prices from 2014. There was our large PED-led pork supply deficit where every sector of the pork supply chain was clamoring for product. At one point in 2014, the farmer share was 40.3%. If you exclude 2014 from that five-year average, it comes to 26.1%. Our current pricing environment is still a little weak by historical standards on the cash hog end.

Futures have made the big, expected move higher. It would not be surprising to see the futures end slow down the ascent here. It could still hit up to $80 this summer, but the days of arguing that hog futures are sharply underpriced are over. We are now above our $77 expiration price for the June contract. There is likely another week or two left for bulls to run the show. We suggest this rally is soon getting into the area where long-term hedging needs to be made. We will be more active in that discussion in the coming days. 

Rich Nelson | Allendale Inc. | 815-578-6161

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