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This thrill is gone as pork bellies fall off the cliff

7% drop in belly price in a single day is signaling the end of the summer seasonal prices.

Monday 23 July 2018 (27 days ago)
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The belly primal signaled the downturn for the summer seasonal when it fell off the cliff last week losing almost 7% of its value in a single day. Carcass prices followed suit and have drifted down 5-10% since the seasonal peak was put in a few days earlier than the belly price peak. The thrill is gone for this summer as all the primal cuts followed suit and have turned down despite summer slaughter weights that were the lowest in several years (a summer of very hot weather). Total head slaughtered under federal inspection is tracing out the expected 3-4 percent increase year-over-year while export sales are very closely following last year’s pattern, at least since April and May. Weaned pigs on a cash basis hit $15.00 on average this week with some sales lower reflecting an extremely bearish forecast for December hog prices.

The latest projections from the International Monetary Fund World Economic Outlook report is for per capita GDP (income) to grow almost 25% in the next five years. That will fuel a lot of additional meat consumption world-wide, but we may get the meat a little faster than individual purchasing adjustments are likely to be made.

This will help fulfill the big turnaround in expected total US consumption of meat this year which USDA forecasted to exceed 222 lb (101 kg) per capita for the first time in history. That’s almost 10 ounces (283 grams) per day for the entire population. This is a marked reversal of the big slide initiated during the global recession and its aftermath beginning in 2008/2009 and lasting through 2014. Record high commodity prices for corn fueled by competitive ethanol production and a devastating drought in 2012 coupled with a massive beef herd kill due to weather sent meat prices soaring at retail. Quantity demanded for meat on a per capita basis reversed a 30+ year trend upward.

Although it is completely unscientific to draw conclusions from this for a variety of reasons, I can report that whole, boneless fresh pork loins were selling in my city this weekend for the lowest prices I have seen in years (as low as $1.15/lb (€2.16/kg)). Some brands of bacon were half their normal prices and both beef and poultry products were selling at bargain basement prices such as 80% lean hamburger (beef mince) selling well below $3.00/lb (€5.63/kg). What will that look like in December when forecasted live hog prices are expected to be cut almost in half from summer peaks?

High protein diets (or at least low carbohydrate diets) are back with some interesting reversals in the medical press regarding the dangers of some types of fats in the diet. This has given rise to the new “keto” diet rage which emphasizes the consumption of seafood, meat, fats such as clarified butter (ghee) and coconut oil along with higher fat vegetables such as avocadoes. The theory is to retrain the body to normally create energy from fat instead of glucose (carbohydrates). This is now beginning to influence restaurant menus and the large meat portions are back just in time in many very popular chain restaurants.

In other good news for hog producers, corn and soybean prices are also tracking down dramatically since tariffs were confirmed in May. Cash corn has fallen below $3.00/bushel (€101 Euro/Tonne) in some parts of Iowa recently. Corn prices for the end of the year trading have ticked up a small amount recently but are off almost 20% since May. On a similar note, soybean meal is off about 23% for the same period. Plenty of stocks in both crops and huge harvests are predicted at this time. While there is some substitution of feed ingredients among hog finishers when relative prices force it, the demand for both corn and soybean meal (soybeans) is not subject to a whole lot of adjustment in the short term (6 months to one year). China is currently backing down or reselling purchasing contracts for US soybeans, but other countries are stepping up purchases to help fill the void.

In the same way an overproduction of hogs lasts almost a year after producers begin to cut back breeding stock mating when prices plunge for finished animals (and stay down long enough), demand for feedstuffs cannot simply be postponed or delayed waiting for better prices or attempts at gaming the system due to animals in the finishing pipeline. There will be a huge demand for US corn and soybeans on a global basis and a 25% tariff will reduce it far less than most people believe.

As mentioned recently, your economic survival in the coming months and short number of years will be directly related to the ability of your slaughter plant/processor to be a competitive player in this very challenging period ahead. Old school stuff will not suffice. Next time we will enumerate some of the characteristics you should be looking for in the right slaughter/processing chain.

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