A jump in hog slaughter to its highest since 2008, thanks to soaring feed costs, disguises preparations by farmers to "accelerate" their response to a recovery grain supplies, the US Department of Agriculture said.
The US pork cutout, the wholesale price of a dressed carcass, dropped to $76.42 a hundredweight on Tuesday, down 4.0% in a week and some 20% year on year.
These values, the lowest since September 2010, were depressed by the surge in hog liquidation by farmers seeking to avoid losses instilled by elevated grain prices.
Hog slaughter last week hit 2.43m head, the third-largest number on record, beaten only during a liquidation wave in December 2007 and January 2008.
"Producers have been quite aggressive in marketing hogs following the spike in feed costs, and this has started to pull pork supplies forward," report from Paragon Economics and Steiner Consulting said.
"The surge in hog slaughter numbers has put dramatic pressure on pork prices."
'Prices bottomed out'
However, drilling down to sow data shows quite a different picture, with farmers maintaining their breeding stock to position for a longer-term market recovery, once easier feed supplies return the industry to profit, USDA livestock specialist Rachel Johnson said.
While sow slaughter rates picked up in the early days of the grains rally, running in July 5.7% above year-ago levels, they remained below the five-year average for the month.
And in August, they appear to have run less than 5% below year-ago levels, although detailed data will not be available until Friday.
Furthermore, sow prices, at $41.78 per hundredweight, "appear to have bottomed out and to be turning upward", Ms Johnson said.
"If a large-scale liquidation was underway, it is unlikely that prices would have bottomed out as they did in August."
'Not sprinting towards the exits'
Indeed, producers appear to be banking on the elevated prices for the likes of corn and soymeal being only a one-season phenomenon.
"Moderate summer sow slaughter suggests [preparations for] a scenario in which the current price environment will persist through only the 2012-2013 crop year," Ms Johnson said.
Preserving sow stocks "during difficult market conditions would leave hog producers prepared to accelerate production as an improved feed grains production outlook, and a depleted animal protein supply, restore prospects for positive producer returns.
"Sow slaughter data suggests that hog producers are not sprinting towards the exits."
In fact, the USDA foresees a sharp rise in pork output in the last three months of 2012, rising to 6.29m pounds, up 740m pounds quarter on quarter, as the hog liquidation wave continues for now.
"The normal seasonal increase is 400-500m pounds," broker US Commodities said.
Pork production will then show steep year-on-year decline in the first half of 2013.
Indeed, output overall next year is pegged at 22.9bn pounds, a drop of 300m pounds year on year, and well below the 23.8bn-pound figure the USDA forecast in May, before the grains rally kicked in.
As for lean hog prices, these may take longer than usual to find their typical autumn price nadir, US Commodities said.
"In 2007, the largest slaughter year, hogs bottomed November 19. In 2003, the market bottomed November 26," the broker said.