Lard and Lard Oil Markets Recover After a Tough Year

08 November 1999 00:00  [Source: ICB Americas]

By Jim Papanikolaw

After lagging throughout most of year, the US lard market is picking up, thanks to stronger demand from the domestic food and chemical industries.

Pork production rose and competition increased from other oversupplied fats and oils, such as soy and palm. Coupled with lower export demand, the increased availability of lard and rival materials drove its prices down.

At the beginning of the year, lard ranged from 16 cents per pound to nearly 18 cents. Then global agricultural economic conditions started to weaken the market. Prices fell during February and March and stayed in the mid-to-lower teens for most of the year, collapsing to 11 cents per pound in July.

Since August, prices have crept back up to 21 cents per pound because of stronger demand for both edible and inedible material.

Sales of consumer goods have been strong, and the chemical industry has consumed more animal fats, including lard, that can be fractionated into fatty acids used in personal care and industrial products.

"It seems like the chemical and animal feed side of the business started to strengthen in August, forcing values up," a trader says. "The start of the baking season, which traditionally spans from September to December, has also created a demand pull that has helped push values higher."

The use of lard and other animal fats in animal feed has grown because of higher demand from the pet food sector and reduced grain values for milo, corn and wheat. Analysts say farmers are buying cheaper grains and mixing them with animal fats to boost their energy content.

Lard prices are expected to remain around their current levels for the rest of the year, though a seasonal drop in the demand for edible material and continuing soft agricultural conditions should weaken prices by early 2000.

"A drop-off in consumption as the baking and holiday season ends should pull values down a bit," another trader notes. "The great growing conditions in the US is also expected to put a lot of soybeans and corn on the market, further affecting animal fats."

Prices for lard oil should follow a similar trend, though they are likely to be stronger because of steady demand. Lard oil prices range between 53 and 58 cents per pound, depending on grade, volume and freight, and analysts expect them to remain stable for the rest of the year.

Applications for lard oil include pharmaceutical uses as a nutrient and a defoamer during antibiotic fermentation. Lard oil is also used to make fat liquors, which can improve the texture of leather, and as a lubricant in metalworking and textile manufacturing.

The US pork industry has recovered somewhat after hitting rock bottom last year, but the market still remains relatively depressed despite solid domestic demand.

"We're recovering from the record low prices a year ago," says Dr. Steven Meyer, director of economics for the Clive, Iowa-based National Pork Producers Council. "We have not had many break-even prices this year, but $35 per hundredweight hogs beats $10 per hundredweight hogs, which is what we saw for a week or so last fall."

Last year's depressed prices were the result of a 10 percent increase in production and the loss of 8 percent of the nation's slaughter capacity during the preceding two years, according to Dr. Meyer.

Despite an 18 percent increase in exports last year, producers were hurt by a lower-than-expected recovery in demand from Southeast Asia. Also, labor disputes and strikes within the Canadian hog slaughter industry led to an influx of hogs from that country.

Despite low hog prices last winter, the pork industry has been slow to scale back production. Beginning hog inventories climbed 2 percent to 62.2 million head in 1999, and pork production is forecast to reach a record 8.7 million tons in 1999, according to USDA.

Beginning hog inventories are projected to decline 4 percent to 59.6 million head in 2000, as producers are expected to reduce their herds in response to prolonged low prices and poor profitability.

A seasonal slowdown in pork production strengthened prices last summer. However, a pickup in slaughter is expected to keep prices low for the rest of 1999, although they should not hit last year's rock bottom levels.

OMEGA PROTEIN Corporation had a net loss of $10.9 million during its third fiscal quarter of 1999, which ended September 30. The result was down from a net income of $5.6 million in 1998's third quarter. The company took an inventory write-down of $14.5 million for the 1999 third quarter, which contributed to its net loss, in response to market pressures on protein meals and edible oils.

UNITED CATALYSTS Inc. will raise the prices of its slurry nickel hydrogenation catalyst by 10 percent, effective December 1. The company says the increase is primarily driven by escalating costs for nickel.

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