As often happens in June, hog prices are rising fast. Cash hog prices on last Friday’s morning report averaged $82.35 per hundredweight, $6.01 above the week before, $13.11 above the first of June, and $18.91 higher than a month earlier.
The futures market anticipates steady to possibly higher hog prices over the next several weeks. When the June lean hog futures contract expired on Thursday, the July hog futures contract was trading $0.45 per hundredweight higher than the June contract. That day the August contract was $2.57 per hundredweight under June. Hog prices often peak in late-June or early July.
Declining hog slaughter is the primary reason for the higher prices. Hog slaughter last week was only 2.215 million head, down 2.5% from the week before, down 5.3% from a month ago and the smallest hog slaughter for a non-holiday week since the week ending July 22 of last year. Last Saturday’s slaughter was only 21,000 head, the smallest Saturday number since June 24, 2017. Hog slaughter is likely to remain light for three more weeks then begin a long seasonal uptrend following the week of July 4.
Heavy slaughter weights are offsetting some of the decline in hog slaughter. Last week hog slaughter was up 1.7% year-over-year, but because of heavier slaughter weights, USDA’s estimated pork production was up 3.8%. Hot weather will keep market weights down in coming weeks. The lightest dressed weights of the year typically come in August.
As also is common for June, hog prices are rising much faster than is the pork cutout value. On Friday morning, the average hog carcass price equaled 98.5% of the pork cutout value. A month earlier hog prices were 86.6% of pork cutout and two months ago hog prices were 73.6% of the pork cutout value.
The June quarterly Hogs and Pigs report will be released June 28. Large revisions to past inventory reports are not likely. March-May hog slaughter was up 3.4% which is exactly what USDA’s March inventory survey predicted. The March report implied June-to-August market hog slaughter will be up 3.14% year-over-year. During the first two full weeks in June, hog slaughter was up 2.4% compared to the same period last year. This recent shortfall in marketings could be temporary. Heavy slaughter weights may indicate producers have been holding hogs in anticipation of higher prices ahead.
I expect the June Hogs and Pigs report to show slowing herd growth. Historically, breeding decisions have responded to profitability in the last four to six months. Hog prices have been unprofitable seven of the last nine weeks. Iowa State University profit calculations put May net returns at minus $0.80 per hog marketed during the month. This was the third consecutive month of red ink.
According to calculations by Lee Schulz, economist at Iowa State University, the cost of production for hogs marketed in May was $46.84 per hundredweight (live) or $62.46 per hundredweight (carcass). This was the highest monthly cost in the Iowa series since August 2015.
The June 11 weekly crop progress report says 77% of corn acres were in good or excellent condition. That is 10 points higher than the same week last year, and last year’s harvest produced a record 176.6 bushels per acre. Midwest weather conditions in the next six weeks will go a long way toward determining corn prices for the coming year.
The U.S. economy continues to post impressive numbers. The unemployment rate was 3.8% in May, the lowest for any month since 3.8% in April 2000, which was the lowest month since 3.5% in December 1969. The low unemployment rate appears to be pushing up the inflation rate. The consumer price index for May was up 2.8%, year-over-year. This was the biggest increase since February 2012. Excluding food and energy, the cost of living in May was up 2.2% year-over-year, the biggest increase since January 2012. Strong economic growth is usually good for meat demand.
The average grocery store price for pork during May was $3.741 per pound, down 1.1 cents from the month before. Despite lower retail pork prices than in April, tighter margins for middlemen allowed the May average live price for 51-52% lean hogs to be up $6.98 per hundredweight to $46.86 per hundredweight. Packer margins were down 2.4 cents per pound in May and the wholesale-retail price spread was down 10.9 cents per retail pound compared to April 2018.
April pork exports totaled a record 547.9 million pounds, up 18.4% from the year before. The increase was due mostly to large increases in shipments to Mexico, South Korea, Colombia and China. Exports equaled 25.6% of U.S. pork production, the highest share for any month since May 2009. Pork exports have been above the year-earlier level for 23 of last 24 months.
On Thursday afternoon, USDA will release their monthly Livestock Slaughter report. Preliminary data indicates May hog slaughter was up 2.68%. May 2018 had the same number of slaughter days as last year. Friday afternoon USDA-NASS will release their monthly Cold Storage report. Stocks of frozen pork have been above the year-earlier level at the end of each month since December, and is likely to be up again on May 31. The June Cattle on Feed report also will be released on Friday afternoon.