December 2001: Review of the U.S Hog Market

by 5m Editor
20 December 2001, at 12:00am

Our Monthly look at the trends in US Hog Market and what effect thes may have on future prices; Hog Price Slide Continues; Slaughter Above Forecasts; September Pork Exports Drop Below 2000’s; Retail Pork Demand Still Strong; Hog Price Outlook; Futures Based Cash Price Forecasts - Written by James Mintert, Kansas State University.

Hog Price Slide Continues

Barrow and gilt prices in recent weeks have been far below year ago levels. Although the Iowa-S. Minnesota fourth quarter average (through early December) was $51.73 (carcass weight), down 3% from last year, mid-December prices were in the low $40’s, as much as 14% below a year ago. Rising hog slaughter is the primary reason for the recent hog price slide, as federally inspected slaughter for three out of the last four weeks was above 2 million head.

Slaughter Above Forecasts

Following the September Hogs and Pigs report, fall quarter hog slaughter was forecast to decline about 1% compared to last year.

Instead, through early December, fourth quarter hog slaughter was actually 1% larger than during the fourth quarter of 2000. And slaughter three out of the last four weeks was above 2 million head. As a result, slaughter over the last four weeks averaged 1.9% larger than a year ago.

The pork production increase has been even larger than the slaughter increase because of heavy hog weights. Hog weights have been above the year ago level throughout 2001, but that trend showed signs of accelerating during the fourth quarter.

Through early December, fourth quarter 199 dressed hog weights averaged 269 pounds, up 3 pounds (1.6%) from a year ago. The combination of heavier weights and larger slaughter pushed fourth quarter pork production (through early December) up 2.7% compared to 2000’s.

How Large Will Slaughter Be In Early 2002

Following the September Hogs and Pigs report, hog slaughter during the first quarter of 2002 was projected to fall about 2% below the first quarter of 2001. But unexpectedly large hog slaughter late in the fall quarter could be an indication that hog slaughter this winter will be larger than USDA’s estimate of the summer pig crop indicates is likely.

If that’s the case, it would mean Iowa-S. Minnesota winter quarter prices will be weaker than 2001’s first quarter average of $57.40 (carcass weight). USDA will release its next Hogs and Pigs report in late December, which will provide an updated glimpse at market hog inventories and pig crop size.

September Pork Exports Drop Below 2000’s

Pork exports have been slowing down since spring, when the European hoof and mouth disease crisis provided a strong boost to U.S. pork exports. During September, U.S. pork exports actually fell below a year ago, for the first time this year.

As a result, U.S. pork exports during July-September were only 3.8% larger than last year, a dramatic drop-off compared to the first half of 2001 when pork exports were 32% larger than in 2000. Although some observers expect U.S. pork exports to Japan to benefit from Japan’s BSE situation, any increase in pork exports related to consumer concerns about beef are likely to be modest.

Moreover, Japan’s imposition of the safeguard on pork imports effectively discourages larger pork imports by raising the price of imported pork. The safeguard is in effect until the end of March, 2002. As a result, the slow down in pork exports is expected to continue through fall and into 2002.

The combination of pork production above a year ago, declining pork exports and increasing pork imports means that per capita pork supplies this fall will be 2 to 3% larger than last year.

This is a larger domestic pork supply than forecast following the September Hogs and Pigs report. And per capita pork supplies will remain above the previous year’s level during the first quarter of 2002, assuming exports fall below 2001’s as expected.

Retail Pork Demand Still Strong

USDA’s estimate of retail pork prices during October was $2.76, up 5.5% compared to October 2000’s $2.62. The year-to-year percentage increase was even stronger than last summer when retail pork values were up 3 to 4% compared to last year.

Wholesale pork values, however, have been weakening in recent weeks. As of early December, USDA’s weekly average pork cutout was $56.93, 4% below last year. Some of the weaker wholesale pork cuts appear to be the higher value cuts, such as the loin which averaged 7% below last year from October through early December. Other cuts, such as pork bellies and hams were still trading above last year’s level.

Hog Price Outlook

Barrow and gilt prices in the Iowa-S. Minnesota market averaged $51.73 per cwt. (carcass weight) during the first ten weeks of the October-December quarter, down 3% from last year’s average. But prices near the end of the quarter will be much weaker, likely trading in the low $40’s.

Increasing per capita pork supplies this winter mean that winter 2002 barrow and gilt prices are expected to average in the low $50’s (carcass weight), well below last year’s upper $50’s average. More robust pork demand, both domestically and in importing countries, would lead to higher prices than forecast.

Futures Based Cash Price Forecasts

Futures prices, adjusted for basis expectations, are a source of continuously updated cash price forecasts. As an example, Western Corn Belt 51-52% lean barrow and gilt price forecasts based upon futures prices at the time of this writing (12/12/01 settlement prices) adjusted for basis expectations are included in a graphical format. Basis forecasts are based upon the most recent three-year average basis for 51-52% lean barrows and gilts. To provide some indication of the amount of risk present, forecasts based upon the most positive and negative basis of the last three years are also included.

Weekly updates (in graphical form) of these price forecasts are also available on the K-State Livestock & Meat Marketing Web Site ( in the weekly electronic publication entitled Hog Price & Supply Graphs.

Information provided by KSU Livestock report. For more information visit the KSU Livestock website.
Reproduced with permission.