In this week’s hog commentary we want to compare the projected pork primal price changes mentioned in last week’s newsletter with how the five primal cuts actually closed out this week.
We projected the loins would be toppy. They closed out Friday 6/2 at 90.88 but finished the week ending 6/9 at 91.99. hardly weaker as projected , but rest assured it’s coming and we are staying with the projection. Packers cannot sell the boneless loins based on a bone in market of 91.99 and they are starting to back up.
Butts we called steady at best, they finished last week at 108.69 and this week the price going home Friday is at 103.60, down 5.09. It was mentioned to our readers last week that the loin/butt price spread was at 17.88 and is too wide a spread of $12.00 or less is more normal. The spread this week closed out at 11.94. We think this spread could come in a little narrower to 10.00 or less. We’ll have to see.
Picnics were called steady, but they increased in price to 64.53 coming from 61.13 up $3.40 cwt. The strength came from the boneless picnic price increase this past week due to the severe shortage of 72% lean trimmings. Sausage makers were forced to buy boneless picnic to use in their formulation. The boneless picnic price came form 87.53 last Friday to 94.51 this Friday. The shortage in lean trimmings has been caused by the fact that the packers cannot sell the boneless loins and have cut back on their boning lines opting to sell bone in loins instead. This is why it is thought that the loin strength seen last week will be short lived.
Ribs were called to be on the defensive and that was the case. Last Friday they were 144.01 and this Friday they ended the week at 137.66 down 6.36 and they aren’t done in our opinion.
Hams were surprisingly resilient, and were predicted to be down 4 to 5 cents, but they ended up 1.03. We will call them steady for now but they could move a little higher yet , if weekly kills are cut back.
Bellies were an easy call. Bellies were called higher and they added 6.45 to their price versus last week. They will continue to climb and may even have a sharp price increase if kills get cut. We are not prepared to call a top yet but stay tuned it’s coming.
The carcass cutout closed out Friday 6/2 at 90.76 and this past Friday at 92.45 up 1.69. Needless to say the modest increase in the value of the carcass cutout did not keep pace with the increase in the live hog prices and packer margins are getting compressed. It is thought that they will cut kills and attempt to put the brakes on the live hog price increases while at the same time limit the downside liability of some of the primal cuts. We’ll see.
The week ending federally inspected slaughter was: (expressed in millions of head) For week ending 6/10/2017 2,192
Versus week ago* 1,972
Same week a year ago 2,090
How to we trade this?
- Exit the June /July bull spreads if you haven’t already
- Sell the July hogs on sharp price spikes, (be careful here and be patient, extreme hot weather is forecast in the Midwest for the next week to 10 days) This could slowdown marketing’s and force the packer to pay higher even with the kill cuts.
- Stay with the LHZ/ LHN back spreads if you already have them or put them on at $20 or more to the LHN.
- Sell October hogs on rallies. But again be patient don’t get in a hurry here. They went into the $70’s last year and given the right set of circumstances could do it again.
- Watch the USDA composite belly price closely. When the bellies top out the live hog prices will be under pressure.
Hedging Cattle in the Summer 2017: A Paradise of Risk
Hedging Cattle is risky business in Summer 2017 thanks to recent weather events and high cash demand. Senior Broker and Market Analyst John Payne brings his expert knowledge of livestock futures to the public with this informative report.
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