Hog Prices Below A Year Ago

National base prices reported by USDA averaged about $47.68 per cwt. (carcass weight) during the January-March quarter, 7.5% below a year ago.

National net hog prices (which include carcass premiums and discounts) averaged approximately $50 per cwt. during 2003’s first quarter, about 7% below last year. Similarly, USDA’s estimated pork cutout value averaged about $53.79 per cwt. during January-March, 6.9% below 2002’s.

The year-to-year decline in hog prices means that pork producers are still losing equity.

According to Iowa State University, farrow-finish hog operations during January-February 2003 lost an average of $18 per head marketed. This follows an average loss per head marketed of $16 during 2002. And 2002 was the third year in the last five that farrow-finish operations have lost money.

Commercial hog slaughter totalled 24.5 million head during the January-March quarter 1.3% larger than last year and larger than forecast, based upon USDA’s December Hogs and Pigs report inventories. Based upon the December report, hog slaughter during the January-March quarter was expected to fall about 1% below a year ago, instead of rising above last year.

Last year, the highest prices of the year occurred during the January-March quarter.

That’s not likely to be the case this year.

Instead the highest prices of the year are expected to occur during late spring and early summer. Moreover, prices collapsed last year in late August and early September. That’s not likely to happen again this year as expectations of tighter supplies should prove supportive of prices this year.

Smaller Slaughter Ahead

USDA’s March Hogs and Pigs report, released on March 28th, indicated that hog producers are continuing to respond to losses by reducing the size of the breeding herd as the March 1 breeding herd was approximately 4% smaller than last year.

Producers also expect to hold their farrowings below last year through summer.

Look for hog slaughter to fall below a year ago no later than this summer.

Revised slaughter estimates based on USDA’s March report indicate that hog slaughter this spring (April-June) will likely total 23.4 to 23.5 million head, 3 to as much as 4% below a year ago.

Summer quarter slaughter is likely to fall 3 to 4% below 2002’s, ranging from 24.2 to 24.3 million head. Fall quarter slaughter is expected to rise seasonally from the summer quarter, and could total about 26.1 million head, which is still 2.3% smaller than during fall 2002.

Slaughter for the year is now expected to total 98.25 million head, about 2% smaller than last year.

Strong Pork Belly Prices

Pork belly prices have been a source of price strength amidst overall weakness in the wholesale pork market. Wholesale pork values this past winter were significantly lower than last year, averaging 6.9% below 2002’s.

Price declines among high valued cuts, such as pork loins (down 11% this past winter), were partly responsible for the drop in the cutout value. In contrast, pork belly prices during the January-March quarter were actually 16% higher in 2003 than in 2002.

Declines in hog slaughter during the rest of 2003 should help boost prices for most wholesale pork cuts, including pork loins.

If demand for pork bellies remains strong, it will push the cutout up substantially and provide the stimulus needed to boost hog prices this spring and summer.

Base Price Forecasts

National base hog prices are expected to rise seasonally this spring.

Last year, base prices averaged $47.47 per cwt. (carcass weight) during the spring. This year’s April-June base price average is likely to wind up in the low to mid-$50’s, supported by smaller hog slaughter and an absence of spillover negative news from the poultry sector.

Summer quarter base hog prices are also likely to average in the low to mid-$50’s, again supported by a year-to-year reduction in hog slaughter.

Moreover, prices this year will be significantly stronger than last year in late August and early September when hog slaughter surged and prices collapsed. Look for hog marketings this year to follow a more orderly pattern given that fall quarter slaughter is expected to drop below a year ago and there is no expectation that the processing sector will bump up against any capacity constraints.

Hog prices during October-December are also expected to rise above the prior year. Last fall, national base hog prices averaged $43.36 per cwt..

This year smaller hog slaughter and higher competing meat prices should push the national base hog price average into the upper $40’s.

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 barrow and gilt price forecasts based upon futures prices at the time of this writing (04/02/03) 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 Western Corn Belt 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.