Cattle-Hog Spread Signals Relief for Record Pork CostLydia Mulvany
U.S. meat lovers paying record prices for most of this year may see cheaper pork chops sooner than bargains on steak or ground beef, if livestock futures in Chicago are any guide.
Through July 25, hog futures for settlement in April are down 3.8 percent from this year’s peak on July 15 on the Chicago Mercantile Exchange, while April cattle are up 2.5 percent in that period. The price gap between the contracts has widened about 14 percent since July 16, signaling that traders expect pork supplies to rebound faster than beef, said Chad Henderson, the president of Prime Agricultural Consultants Inc.
The spread of porcine epidemic diarrhea virus that killed piglets helped send hog prices up 55 percent in the first half of 2014, while cattle gained 11 percent as ranchers struggled to rebuild the smallest herd since 1951. With new cases of the virus slowed by warmer weather, farmers may be better able to add to hog herds that take less time to expand than cattle, which require more time to raise and reach slaughter weights.
“I’m bearish on hogs because I think supplies are going to increase,” Henderson said by telephone from Brookfield, Wisconsin. The PED disease “is going to reduce slaughter levels in mid-July to September, but producers have worked through issues, so you’re going to get a bounce back in production,” he said, adding that pork prices may drop as much as 30 percent by April.
Hogs for December delivery settled at 98.15 cents a pound in Chicago on July 25, a 21 percent discount to the August contract. By comparison, the December cattle contract closed 0.2 percent below August cattle futures.
Wholesale pork fell to a three week-low on July 24 after climbing to a record $1.3756 a pound on July 18. Retail pork chops that jumped to an all-time high $4.106 a pound in May eased to $4.024 last month, government data show.
Prices for wholesale beef rose to a record $2.5738 a pound on July 25. Retail ground beef climbed to a peak of $3.88 a pound and boneless-sirloin steak reached a high of $7.689 a pound in June, Bureau of Labor Statistics data show.
Americans will eat more pork next year and less beef, according to USDA forecasts. On average, people will consume 45.9 pounds (20.8 kilograms) of pork in 2015 compared with 45.7 pounds in 2014, according to the USDA. They will eat 53.6 pounds of beef in 2015, compared with 54.2 pounds this year.
Cattle take as long as two years before they are ready for slaughter, so beef supplies will be lower next year, according to Ron Plain, an agricultural economist at the University of Missouri in Columbia.
“Consumers will eat less beef next year than this year,” Plain said. “Whether pork fills in that gap largely is going to do with how well we manage the PED virus. There’s a good chance pork will fill in some of that reduction in beef consumption.”
Cattle futures for October delivery declined 0.2 percent to $1.595 a pound at 10:09 a.m. in Chicago. Earlier, the price climbed as much as 0.6 percent to a record $1.6075.
U.S. cattle inventories as of July 1 fell to the lowest for the date since records began in 1973, government data showed on July 25 after the market closed.
Hog futures rose Oct. settlement dropped 0.1 percent to $1.07175 a pound.