CME: Cooler-than-normal Weather a Big Help
US - Prices for cash hog prices declined sharply this week as producers are becoming increasingly anxious about the prospects of pork sales this fall, write Steve Meyer and Len Steiner.The slowdown in hog
slaughter in July did little to support the market. Rather, it had
caused market hogs to back up and increased meat supplies in the
pipeline. Hog slaughter last week was over 2.2 million head, the
largest weekly slaughter for this time of year ever. In addition,
hog weights are now trending higher, not lower as is seasonally
the case this time of year.
Cooler than normal weather clearly
has been a factor in producing heavier weights but we also think
producers are behind in marketings and are trying hard to catch up
(hence the 8.5 per cent drop in cash hog prices this week). As a result, the
market had to contend this week with a 7.5 per cent increase in weekly
pork production. Packers likely will have an incentive to maintain
heavy slaughter schedules next week given the improvement in
margins. While hog prices declined 8.5 per cent this week, the cutout
dropped only 4.2 per cent, the difference going to pad packer margins and
maintain demand for hogs going forward. Sow slaughter remains
the hot topic of conversation and we have seen some reports that
sow prices are down sharply , an indication that producers are getting
serious about reducing production going forward.
USDA is
reporting that sow prices are drifting lower but not as much as we
have seen in private accounts. The price of 500/550 pound sows
quoted by USDA in their Friday report (for day prior) was
$38.46/cwt, almost $7/cwt lower than where they closed last Friday
and now below year ago levels. According to USDA, their sow report
captures less than 60 per cent of sows sold. Only large producers are
required to report under the mandatory reporting requirements so
it is likely that even lower price points were achieved but we do not
have official confirmation of that.
The point, however, is that sow
prices indicate that producers are starting to again reduce sow
stocks. Lower grain prices and prospects of near record corn yields
will likely slow down the liquidation but we also understand that
banks have become much more anxious about the prospects for the
US hog industry in 2010 and will have a say in the financing decisions
that will be made this fall. In the meantime, the industry will
have to bear down and go through the hogs that are currently on
the ground and the potential losses implied by fall futures.