Pork Profit Maximizer – Retail Edition

August 19, 2019

The pork cutout had been trending higher in the first two weeks of August but posted a sharp decline on Friday. October futures were down the daily permissible limit on expectations that, in the short term, record pork supplies will drive the cutout even lower in the fall and negatively impact the cash hog index.

In recent months we have noted a much more volatile spread between the value of the cash hog index and negotiated base prices, which in the past were seen as a benchmark for cash hog values. We think the cash hog index today is much more impacted by the value of the cutout since a certain number of hogs that are counted in the index, we don’t know the exact number as it is not reported, are priced off the cutout.

Therefore, we now see a situation where the cutout is moving higher, and thus the value of some hogs is higher even as cash hog base prices are going in the other direction. Prospects of a lower cutout value likely played on the expectation that October hog futures will negatively be impacted even as base cash hog prices were higher on Friday.