September farm-to-retail pork price spread highest on record | Pork, margins | Michigan Farm News

September farm-to-retail pork price spread highest on record

Category: Livestock, Markets & Weather

by Farm News Media

Pork in Store_MFN_2017
Rising retail values has caused the wholesale–to-retail spread to also have set record-high margins for September.

Pork producers experienced a new record in September - unfortunately it wasn’t a positive one, according to USDA’s Economic Research Service (ERS). The farm-to-retail pork price spread hit a new record high of $3.24 per pound.

The farm-to-retail price spread is the calculation between how much the farmer receives versus how much the retailer receives on a per-pound basis, said Michigan Farm Bureau Livestock Specialist Ernie Birchmeier.

“Over 50 percent of the retail value is in the retail-to-wholesale price spread, but in September that number surged to 68 percent,” Birchmeier said, adding that the retail portion has been climbing since the beginning of the year.

“In January, ERS estimated retail pork values were $3.57 per pound, compared to September’s high of $3.98 per pound,” Birchmeier said. “In comparison, the wholesale value peaked much earlier this year, in July at $1.86 per pound, compared to October’s value of $1.21 per pound.”

According to American Farm Bureau Federation Economist Katelyn McCullock, those rising retail values has caused the wholesale–to-retail spread to also have set record-high margins for September. However, the October wholesale–to-retail spread dropped 40 cents per hundredweight per pound from September’s record-high spread of $2.69 per pound.

“The other side of the farm-to-retail spread is the difference between net farm value and wholesale value, which captures, in essence, the price difference between what a packer pays for an animal and what they can sell it for after processing,” McCullock said. “This value is closer to the long-term average proportion of the retail value of 13.4 percent.”

In September, this proportion was slightly higher at 13.7 percent, followed by October coming in below average at 12.2 percent, according to McCullock. “The farmers’ share is typically just over 30 percent, but in September and October of this year that share was under 20 percent,” she said.

2017 proportions of the retail value.

Pork Chart_MFN_2017

Despite some compression in packer margins, packers are still making some money on a per-head basis, which has enabled them to purchase hogs at competitive prices, including two new packing plants in Iowa and Michigan -- since opening in September -- have been ramping up production and have increased the demand for slaughter hogs.

“As a result from the increased competition, slaughter hog prices have rallied through October,” Birchmeier said. “Since the last week of September, hog prices have risen $10.54 per hundredweight, before plateauing in the most recent week at $68.01 per hundredweight.”

While still not profitable, Birchmeier said that has helped to reduce farrow-to finishing losses from a loss of $13 per head in September to a loss of $1 per head in October.

Iowa State University estimated returns from farrow to finish

Hog Chart_MFN_2017