(Reuters) – The price of hog futures relative to cattle has tumbled to its lowest in nearly nine years as the worst drought in half a century lifted grain prices to record levels and increased herd liquidation.
The lower price for pork could encourage more consumption of pork and less of beef, at least in the near term, analysts said.
The difference in price could widen further this fall when hogs gain weight as cooler weather allows for a greater conversion of feed into body weight, the analysts said.
“There has been a ramp up in pork production,” said Jim Robb, director of the Denver, Colorado-based Livestock Marketing Information Center (LMIC), which provides economic analyses and market projections to members that include government agencies.
Robb said on Wednesday that the rush to slaughter hogs could be a signal that producers are expecting prices to fall further in the near term.
Lean hog futures at the Chicago Mercantile Exchange are hovering at about their lowest levels in 20 months at 73.975 cents per lb. Meanwhile, live cattle futures are near 119.775 cents after peaking at 131.250 cents in March.
The price spread between the two was 45.8 cents per lb on Thursday, just under the highest level in nearly nine years of 47.9 cents set in December 2003.
The drought, centered in the Midwest, lifted the benchmark December corn to a peak of $8.49 per bushel on Aug 10, and spot soybeans to a record high of $17.80-3/4 on Thursday.
“You already had a big drawdown in cattle numbers and now we are playing catch up with hogs,” said Dan Norcini, an independent hog trader at the Chicago Mercantile Exchange.
“Right now, pork prices are plummeting in the wholesale market. We might begin to see pork reach a level where it draws some interest from grocers. Low prices tend to stimulate demand, and it could be at the expense of beef,” Norcini said.
The historic drought in the southern Plains last year forced many cattle ranchers in states like Texas and Oklahoma to cull their herds due to high feed costs as corn prices neared $8.
A total of 9.74 million hogs were estimated by the LMIC to have been slaughtered in August. If confirmed by the USDA, it would be the highest-ever hog slaughter in the month of August and the highest monthly slaughter since December 2011.
CATTLE PRICES GOING HIGHER
Ron Plain, professor of agricultural economics at the University of Missouri, said he was expecting cattle prices, which hit a record high in 2011 and 2012, to continue that trend and hit a new peak next year.
“The spread (between cattle and hogs futures) says beef is expensive. There are not many cattle out there and two years in a row they have been short on grass,” he said.
The U.S. cattle herd is the smallest in about 60 years, and U.S. per capital beef consumption has been falling.
“The USDA projects per capital beef consumption at 57.2 lbs this year, which will be the smallest since 1952,” Plain said, adding that beef consumption peaked at 94.1 lbs in 1976.
The retail price for choice-grade beef in July was pegged at 501.3 cents per lb by the USDA's Economic Research Service, the highest since 505.30 cents in March.
The retail price for pork was pegged at 343.4 cents per lb, the highest since April's 349.50 cents, the agency said.
Source: Reuters
Posted by Haylie Shipp
