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November 2001: Review of the U.S Hog Market

by 5m Editor
13 November 2001, at 12:00am

Our Monthly look at the trends in US Hog Market and what effect thes may have on future prices; Heavy Hog Weights, Pork Exports Slowing Down, Higher Value Pork Cut Prices Weaken, Hog Price Outlook amd Futures Based Cash Price Forecasts - Written by James Mintert, Kansas State University.

Hog Prices Slip Below A Year Ago

Barrow and gilt prices were above a year ago from mid-February through mid-October, but prices during the last half of October dipped into the low $50's, slightly below last year. The price decline was primarily attributable to a modest increase in pork production.

Heavy Hog Weights

Hog weights have been heavy, as expected. A combination of low-priced corn, relatively strong hog prices and increasing adoption of the feed additive, Paylean, pushed average live hog weights up to 267 pounds in October, 1.4% heavier than last year's 264 pound average. Hog weights will remain heavy the rest of the fall and it now appears that heavy weights will keep pork production this fall about equal to last year's. Heavy weights will continue to be the norm throughout 2002 and will become more of a problem next year when hog slaughter starts to rise above the previous year's level.

Pork Exports Slowing Down

Pork exports were still larger than last year during August (most recent data available), but were clearly slowing down. Hoof and mouth disease (HMD) in Europe provided a boost to U.S. pork exports during the first half of 2001. For example, first quarter pork exports rose 20% and second quarter pork exports rose 45%, both compared to the previous year. But the year-to-year increase in summer quarter pork exports will be much smaller. Exports during July-August were only 8.8% larger than 2000's and exports during September are only expected to show a small increase over last year's volume. Pork exports this fall are likely to fall below a year ago as weak economies in importing countries reduce demand for imported pork and European producers recapture markets temporarily lost during the HMD crisis. At the same time that pork exports are slowing down, pork imports are increasing. Most of the increase in pork imports is coming from Canada, although imports from Denmark have also started to increase.

The combination of pork production near a year ago, declining pork exports and increasing pork imports means that per capita pork supplies this fall will be about equal to last year's. And per capita pork supplies could start to rise above the previous year's level during the first quarter of 2002, assuming exports fall below 2001's as expected.

Higher Value Pork Cut Prices Weaken

At this point it's still difficult to discern whether or not pork demand has changed appreciably since mid-September. An examination of wholesale pork prices reveals that since mid-September higher value pork cuts, such as pork loins, have fallen well below a year ago. For example, 13-19 pound one-quarter inch trim loins averaged $113.41, down 5% from the same period last year. But lower valued cuts still averaged higher than in 2000. Ham, Boston Butt, sparerib and pork trimming prices from mid-September through late October were all substantially higher than last year, indicating that U.S. customers have primarily backed away from the highest priced pork items.

Hog Price Outlook

Barrow and gilt prices in the Iowa-S. Minnesota market averaged $55.82 per cwt. (carcass weight) during the first five weeks of the October-December quarter, up fractionally from last year's average. Per capita pork supplies this fall are now expected to be near last year's level which, combined with weak demand for high value pork cuts, means that prices are likely to average in the low $50's, near last year's fourth quarter average. If the pork trade picture continues to deteriorate (exports weakening and imports rising), winter 2002 barrow and gilt prices are expected to average in the mid- $50's (carcass weight), slightly below the year ago level. 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 (11/08/01 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 (www.agecon.ksu.edu/livestock) 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.