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Pork packer margins rise as producers continue to bleed
Story Date: 3/19/2013
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Source: Rita Jane Gabbett, MEATINGPLACE, 3/19/13
Pork packer margins stayed in the black and improved to $4.21 per head in the week ended March 15, compared to $3.37 the previous week and compared to a loss of $9.77 a month ago and a loss of $9.99 per head a year ago, according to analyst John Nalivka, whose calculations are published in The Sterling Pork Profit Tracker.
That’s the good news. The bad news is, packer margin improvement has come from the cost side rather than from improved demand. Pork producers’ farrow to finish margins averaged a loss of $37.11 per head last week, compared to a loss of $37.35 the previous week and a loss of $17.70 a month ago. A year ago, pork producers were enjoying positive margins of about $13.54 per head.
The entire carcass, with the exception of bellies, has been weak, according to BB&T Capital Markets analyst Heather Jones. Lower ham prices have led the decline, but loins and trim have also been weak, reflecting bloated inventories.
She points to pork export volume weakened by Russian and Chinese ractopamine restrictions and the weak Japanese yen. While domestic pork demand is not really weak, “it would have to be robust, which it is not, to offset the multiple challenges in the export arena,” she wrote in a note to investors.
The next LFTB?
In fact, Jones went as far as to suggest it might be time for U.S. pork producers to consider producing some ractopimine-free pork for the U.S. market.
“It does not seem far-fetched to us to think that ractopamine could become an issue domestically, as well — no one really saw the LFTB (lean finely textured beef) debacle coming.”
In terms of pork producers reducing production in the face of steep margin losses, Jones predicted they would wait to see whether corn prices will decline and whether the issues with China and Russia are short-lived.
She estimated another $1 per bushel needs to come off of corn futures prices to allow even efficient, well-hedged hog producers like Smithfield to break even.
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