Evalu8, thanks for the post. Where do you find current hog prices? The Dept of Ag. monthly report for November stated: "Larger than previously expected pork production and the weakening economy have pressured hog prices into the mid-$30s in November after averaging in the low-$40s in October.". However, if I look at future prices, I have not seen prices below mid-40's. Am I mixing apples and oranges? Incidentally, in CC, SFD said they were almost fully hedged through end of calendar year, if I heard correctly.
algo41, sorry for the delay in responding to your inquiry about "where do you find hog prices." I maintain a historical data base obtained from the Wall Street Journal. While it does not provide live prices for the Eastern USA, it certainly provides a relative picture as to the trend, and a comparison to the prior year. Another poster subsequently stated that when live hog prices are low, this means a higher margin for processed product. This is not necessarily true. The higher the live hog prices, the better the results should be for SFD. In other words, SFD would realize a profit on the live hogs, and then a margin for the processed product. When live hog prices are low as is the case now, the profit on the live hog (based upon market) is not there, and the overall profit for SFD will be less (only a margin on the processed product). That is the picture as I see it at this point in time versus a year ago--lower profitability levels for SFD.
evalu8_yes: I question your reasoning regarding the SFD profit outlook when hog prices are low. Just look back a year or so ago when hog prices were the lowest in decades. The company made record earnings at the processing level due to the lower expense of the hogs. Last year a question was posed to Joe Luter regarding the optimum price of hogs that would benefit both the producer and the processor. His feeling was that the best price for live hogs was $45-47. However, that does not mean the company can't show a nice profit at $30 or less. It just shifts more to the processor side of the equation.
One other point is the matter of being hedged. This whole subject is one for great debate. Again, lower profitability on pork with low live hog prices as stated in the previous post is IMO, and is based upon the assumption that one is without some large offset from some type of favorable forward sales position.
Yes, the live weight market price for butcher hogs is currently 32 cents. The futures prices are based on carcass weights. Carcass weight in relationship to live weight is generally 74%. Therefore, multiply a given futures price by .74 to get the projected live price. Low hog prices do not necessarily negativily impact profitability of SFD because it is a processor. Low hog prices lead to increased margins in the packing and processing side of the business.
Thanks Noryml. I know Luter claims SFD is impervious to hog prices, but I am very skeptical. Right now the major share of profits is coming from production. I remember when Thorne Apple Valley (now bankrupt and gone), claimed processing margins were not highly correlated with hog prices.