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Review of the U.S Hog Market - July 2003

by 5m Editor
18 July 2003, at 12:00am

Our Monthly look at the trends in US Hog Market and what effect these may have on future prices - Written by James Mintert, Kansas State University. This months report suggests that the modest year-to-year production decline does not explain all of the price increase, indictating that domestic pork demand improved during spring 2003.

Review of the U.S Hog Market - July 2003 - Our Monthly look at the trends in US Hog Market and what effect these may have on future prices - Written by James Mintert, Kansas State University. This months report suggests that the modest year-to-year production decline does not explain all of the price increase, indictating that domestic pork demand improved during spring 2003.

Overview

James Mintert
James Mintert, Professor and Extension Specialist, Livestock Marketing, Kansas State University

Pork and hog prices rebounded sharply this past spring quarter, which was a welcome relief to hog producers following a dismal winter quarter. USDA’s pork cutout averaged $61/cwt. during April-June, up 17% compared to spring 2002 and 13% higher than during January-March 2003. Similarly, national base hog prices averaged $56.24/cwt. (carcass weight) this spring, 19% higher than last year and national net hog prices (including premiums/discounts) averaged $58.81, 17% higher than a year ago.

The pork and hog price increase was partly a response to smaller domestic production. Commercial hog slaughter during April-June 2003 was 1.7% smaller than a year ago, which is in sharp contrast to January-March when slaughter was 2% larger than 2002’s. Weights, however, were slightly heavier than in 2002, which offset a portion of the spring slaughter decline. As a result, pork production this spring declined just 0.9% below a year ago. The modest year-to-year production decline does not explain all of the price increase, suggesting that domestic pork demand improved during spring 2003 vs. 2002. Increasing pork demand could turn out to be a wild card in the hog price outlook during the rest of 2003.

The rise in hog prices finally pushed returns for average cost farrow-finish hog operations into the black during May. According to Iowa State’s calculations, average cost farrow-finish operations consistently lost money starting in the fall of 2001 through April of this year. But that finally changed in May when returns averaged $7.63 per head. Returns improved further in June, averaging $16.59 per head. Look for returns to remain positive the rest of 2003 and the first half of 2004.

Smaller Hog Slaughter Forecast

The June Hogs and Pigs report confirmed that hog slaughter the rest of this year will be smaller than in 2002. The report indicated that on June 1 the all hogs and pigs inventory was down 3% compared to last year and that the breeding herd was 4% smaller. Year-to-year reductions in the pig crop this past winter and spring imply that hog slaughter will decline 3 to 4% this summer compared to last year’s large slaughter level. Hog slaughter this fall is expected to fall 2 to 3% compared to 2002’s. Slaughter should also be smaller than during the prior year in early 2004.

But the magnitude of this coming winter and spring’s slaughter decline is debatable. Producers indicated that farrowings this summer and fall will only decline about 2 and 1%, respectively. If that holds true, the subsequent slaughter declines will be modest. But given that the June 1st breeding herd was 4% smaller than last year, there’s a good chance that actual farrowings during June-August and September-November will be smaller than indicated by farrowing intentions on the June report. Look for commercial hog slaughter during January-March 2004 to drop 2, to as much as 3%, below the prior year. Hog slaughter during April-June 2004 is also expected to fall about 2 to 3% below the prior year.

Pork production will not fall as much as hog slaughter because hog weights continue to rise. Average annual commercial hog carcass weights have increased every year since 1989. Over the last five years weights rose 0.9% per year. During the first half of 2003, average carcass weights rose just 0.6% above 2002’s. In the year ahead, look for carcass weights to increase at (or even somewhat above) the long-term trend rate, which means declines in pork production will be smaller than the declines in hog slaughter imply.

Fig. 3

Hog and Pork Imports Up

Pork imports during the first four months of 2003 rose 20% compared to last year. The bulk of the increase was attributable to rising imports from Canada, although pork imports from Denmark also rose significantly. Canada and Denmark are the two largest suppliers of imported pork to the U.S., providing 82% and 11%, respectively, of total U.S. pork imports during 2002. Exports during January-April rose 8% compared to 2002, but that was not enough to offset the import increase. So, net pork exports (exports-imports) during the first four months of 2003 were down about 14% compared to 2002.

Live hog imports into the U.S. rose about 5% during January-April 2003 compared to 2002. The increase of nearly 100,000 head was all attributable to rising feeder pig imports. Feeder pig imports rose 263,056 head (+22%), whereas market hog imports actually declined 163,419 head (-23%). Feeder pig imports have been rising rapidly in recent years, but the decline in slaughter hog imports from Canada is a relatively new phenomenon. Last year was the first time that slaughter hog imports from Canada fell below the prior year (-190,933 head) since USDA started providing a breakout of feeder pig/market hog imports in the mid-1990’s.

Fig. 1

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Fig. 3

Base Price Forecasts

National average base hog prices this summer are expected to average in the high $50’s to about $60 (carcass weight) during July-September, 6 to 8% higher than during spring 2003 and 25 to 29% higher than during summer 2002. Seasonally, it looks like prices peaked in the low $60’s during June. But, unlike last year, prices are not expected to collapse in late August and early September when hog slaughter surged. Last year some producers accelerated marketings from early to fall to late summer based on expectations that slaughter capacity would be tight during the fall. Look for hog marketings to follow a more orderly pattern this summer, given that fall quarter slaughter is also expected to drop below a year ago.

Fall quarter base prices are expected to decline seasonally, but still could average in the low $50’s, 15 to 20% higher than last fall, as slaughter and pork production continue to run below year earlier levels. Hog price strength during the first half of 2004 will depend in part on producers’ actual farrowings this summer and fall. If actual farrowings are somewhat smaller than the intentions reported in June, look for base prices to average in the mid-$50’s during January-March 2004. Seasonal price strength next spring should carry the national base price average up into the low $60’s.

Fig. 3


Fig. 3


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.