You know you've turned down a dubious road of commentary when the very first impulse is to apologize. Be that as it may, none of the following is to minimize the severe market abuse that pork producers continue to suffer on a daily basis.

Given a fall butcher market little better than $40 on a live basis, pork producers continue to lose close to $30 on every animal moving off the finish floor. This extends an economic nightmare that dates back to the fall of 2007.

Furthermore, anybody that promises a sustainable return to the land of black in less than several quarters may have been formerly employed by Liar's Mortgage Company or Bernie Madoff himself.

So here comes a double dose of cold comfort: 1) the late year cash trade would be much more had it not been for some positive shifts in middle margins over the last several months; and 2) the greater confidence that these shifts imply, together with hints of actual demand improvement, suggest that market hogs will trade significantly higher through most of 2010.

Consider the how meat spread data appears to be in the middle of a major change.

The farm share of pork's retail dollar dropped to 21.5 percent, 14.4 points smaller than 2008, 11.6 points below the 3-year average and the skimpiest piece of pie for the country since the disastrous days of late 1998. At the same time, the retailer share of the pork dollar soared to 63.6 percent, up from 50.8 percent in 2008 and second only to the all-time record set in November 1998 at 66.5 percent.

Though extremely frustrated, the inflation of retail margins at the great expense of producer revenue since late 2007 was an understandable function of the recession and increasing defensive consumer spending. As economic growth slowed and unemployment grew, meat retailers saw featuring as a dangerous and unnecessary risk vis-à-vis their own bottom line.

Accordingly, grocers and meat merchants were not likely to accept the smaller farm-to-retail spread and more modest margin until they could justify greater confidence in consumer spending. While the full jury remains out in this regard, I sense that such budding confidence is beginning to make a real difference in terms of country price levels.

Although September's increase on farm share seemed modest (i.e., up to 22.3 percent), it did buck a rather strong seasonal trend. The October update will not be available until November 18. I look for a sizable increase given the combination of stabilized hog sales and the greater excitement caused at the meat counter by National Pork Month.

The realignment of margins within the pork dollar may not be as promising as real recovery in the demand curve, but it strikes me as a necessary first step. Now if we can just combine reasonable farm share with better demand and reduced tonnage sometime around mid 2010, then market weary production will at long last have something they can take to the bank.

For more Harrington comments check out www.feelofthemarket.com.

(KM)

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