990645 Hog and Pork Belly Prices Fall

Chicago - Hog and pork belly prices fell the daily limit early last week after livestock traders were stunned by a government report issued the previous Friday that showed U.S. hog producers cut back their herds only marginally after devastatingly low prices last year.

At the Chicago Mercantile Exchange, hog futures fell the 2-cent-per-pound daily limit and pork belly futures tumbled the 3-cent limit after the USDA reported that the U.S. hog herd as of June 1 stood at 60.54 million head, down only 3% from a year earlier. Analysts and livestock traders had expected a 4.5% decline.

“The CME membership was in shock by the report being as bearish as it was,” said Phil Stanley, an independent floor trader at the exchange.

An abundance of hogs last year drove cash prices as low as 8 cents a pound, the lowest level in 50 years and far below the cost of production. Analysts had expected many producers would go out of business. Instead, Friday's report showed only a few had quit and the larger producers had cut back only marginally.

“What it means is that the exiting of small operations from the business does not change the overall supply picture significantly like it used to,” said Chuck Levitt, senior livestock analyst with Alaron Trading Corp., Chicago.

Most of the nation's hogs are now raised in large modern enclosed barns, and these operations must keep the barns filled or go out of business, Levitt said.

The large hog herd will keep pork production high at a time when warehouses already hold record amounts of pork. A meat report released a week ago showed 589 million pounds of pork were in storage as of May 31, the largest amount ever for that date.

Futures on pork bellies, from which bacon is made, fell the 3-cent limit to 41.725 cents a pound for contracts for delivery in July. Hog futures for July delivery fell the 2-cent maximum to 48.875 cents per pound.

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