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Review of the U.S Hog Market - June 2003

by 5m Editor
17 June 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.

Price Strength Continues

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

The rise in pork and hog prices that got underway in early spring continued throughout May and early June. By mid-June, USDA’s weekly average estimated pork cutout value ($69.56) was 34% higher than a year ago and 13% higher than a month earlier. Similarly, weekly average national base hog prices in mid-June ($62.76) were 29% above a year ago and 9% higher than a month ago.

The rise in pork and hog prices was fueled in part by declines in hog slaughter and pork production. After rising 1.7% above a year ago during January-March, hog slaughter during the April-June quarter (through mid-June) fell 1.5% below 2002’s. Similarly, pork production during January-March was up about 2% compared to a year ago, but dropped 1.2% below last year during April-June. The declines in hog slaughter and pork production were less than expected based upon USDA’s March Hogs and Pigs report.

The year-to-year decline in hog slaughter was most pronounced in late May when weekly slaughter volume dropped 4.4% below 2002’s.Hog slaughter picked up the second week of June, rising 2.3% above a year ago. Still, hog slaughter from mid-May through mid-June averaged 1.9% below last year.

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Weights Up Compared to 2002

Normally hog weights decline as summer approaches, but this year weights have held steady. The fact that hog weights have not declined seasonally means hogs are being marketed at heavier weights than a year ago. In mid-June live hog weights averaged 268 pounds, up 3 pounds (1.1%) compared to last year. From mid-May through mid-June, live hog weights averaged 0.8% heavier than in 2002.

The fact that weights are heavier than last year has offset some of the hog slaughter decline. As a result, pork production has been running below a year ago, but the reduction has been smaller than the decline in slaughter. From mid-May through mid-June, pork production declined 1.3%. Look for weights to be heavier than last year during the rest of 2003.

Cold Storage Stocks Tighten

Reductions in pork cold storage stocks have also been supporting pork and hog prices. Total pork cold storage stocks at the end of April were 8.4% smaller than last year, in contrast to March when they were virtually unchanged from 2002. The decline in pork belly stocks has been the most dramatic.

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Belly stocks at the end of April were 24% smaller than a year ago. The reduction in belly stocks is significant because summer is the time frame when belly consumption peaks and stocks are typically drawn down.

This year slaughter is expected to fall well below a year ago, which could lead to a very strong pork belly market.

Pork Demand Rebound?

An index used to gauge the relative strength in U.S. retail pork demand indicates that demand during the first quarter of the year fell at least 2.5% below last year. But price that domestic pork demand has started to rebound. The Canadian BSE situation does not appear to have had any negative impact on beef demand, so it does not appear that pork demand strength is directly attributable to consumers shifting attention away from beef to pork. Pork demand strength could turn out to be a wild card in the wholesale pork and hog price outlook the rest of the year.

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Sow Slaughter Up, Breeding Herd Down

Sow slaughter this year has been larger than last year. During April and May, weekly sow slaughter was 2.3% larger than last year.Moreover, sow slaughter expressed as a percentage of total hog slaughter during the spring quarter was 4.2% larger than in 2002. The rise in sow slaughter indicates U.S. hog producers are still reducing the size of the breeding herd. As a result, look for USDA’s estimate of the June 1 breeding herd to fall about 4% below a year ago.

Base Price Forecasts National base hog prices have increased sharply in recent weeks, rising to the low $60’s in mid-June. Base prices could continue to strengthen and trade in the mid- $60’s for several weeks in late June and early July. Summer quarter prices are likely to average higher than in the spring, possibly reaching the low $60’s for a July-September average as year-to-year reductions in hog slaughter continue to support prices. Fall quarter prices are expected to decline seasonally, but still could average in the low to mid-$50’s as slaughter and pork production continue to run below year earlier levels. A key to hog price strength this fall demand strengthens, as it appears to have done this spring, look for prices to average near the upper end of the price range.

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 (06/13/03) 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.

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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.