Pork Wraps

Remain abreast of the hogs & pork markets with our weekly Pork Wraps written by J.S. Ferraro EVP, Research and Analysis, Dr. Rob Murphy.

Pork Wrap June 04

The JBS cyberattack and subsequent processing difficulties
affected the pork industry in addition to the beef industry.
Tuesday’s kill dropped to 390k, down about 95k from recent
normal weekday kill levels. As with beef, this sent pork buyers
scrambling to find product and the cutout moved higher. As of
Thursday night, the cutout was up about $6 on the week. The
cutout has recently been bolstered by resurgence in interest for
hams and bellies and those two primals led this week’s gains. That
doesn’t mean that interest in the other primals is falling off,

Buyers may breathe a sigh of relief now that all of JBS’ plants are
operating normally again, but with kills shrinking seasonally, they
will likely have to continue paying up for the pork products they
need. The negotiated hog markets have been mixed so far this
week, but the WCB market is up about $1 on a weekly average
basis. So far, there is no evidence that the smaller-than-normal
kills on Tuesday and Wednesday caused much pressure on the
cash hog markets. Judging from what we have been seeing with
hog weights, it looks like hog barns were pretty current coming into
the holiday weekend. The negotiated hog markets have been
working lower in the past few weeks after peaking around $120 in
mid-May. Packer margins swelled to $30/hd this week—a really
strange situation because packer margins are often negative in
June. This raises the potential that pork packers, much like beef
packers, may support the cash hog market at higher-than necessary levels in the next few weeks.

The cutout is likely to keep moving higher, so they will certainly
have the revenue to hold the cash hog market steady or perhaps
even increase what they pay somewhat. The combined margin
chart below shows that the demand strength just keeps building in
this market. The cutout printed $131.52 this afternoon and is
already higher than the peak it made last year during May when
half of the pork packing capacity was down due to COVID
infections in the plants. That is simply amazing. The price rally
won’t end until something changes on the demand side of the
equation, because that is what is responsible for these super-high
price levels.

The futures market is currently pricing the Jun contract, which
has seven trading days until expiration, at a little over $119.
However, traders appear reluctant to extend that strength
much beyond Jun since the Jul contract is almost on par with
the Jun. In the cutout futures, the Jul contract is actually
trading $4 below Jun, which is a signal that traders expect the
cutout to top sometime in the next couple of weeks. I’m not so
sure and thus I raised all of my forecasts once again this

I now expect the ham primal to break the $100 level next week
and possibly trade into the $105-110 range before pulling
back. The hams make up such a large part of the carcass that
it is difficult to get much of a decline in the cutout while the
hams are rallying. The weekly export data was delayed this
week due to the holiday, but traders will be watching it closely
for signs that exports will strengthen this summer. As touchy
as this market is right now, a big export sales number could
send it quickly higher. At this point it looks about $2 too rich to
me, but this market has had an uncanny ability to surprise to
the upside this year.

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