Hog Prices Turnaround

Hog prices turned around dramatically in late April and early May.

Weekly average national base prices reported by USDA ranged between $48 and $49 per cwt. (carcass weight) during most of April. But at month’s end, base prices moved up to average $53 and were approaching the mid-$ 50’s in early May. Similarly, national net hog prices, which include carcass premiums and discounts, traded primarily between $51 and $52 during most of April, but moved up to the mid-$50’s at the end of the month and climbed into the upper $50’s during early May.

Wholesale pork values have also climbed sharply as USDA’s estimated pork cutout value was about 11% higher than in early April and approximately 19% higher than a year ago.

The price rise coincided with a decline in hog slaughter volume. A four-week rolling average of federally inspected hog slaughter tells the story.

In early March, the four-week hog slaughter average was 3% larger than last year.

In early April, the four-week average was about 1% greater than in 2002. But by early May, the four week hog slaughter average was nearly 2% below a year ago.

At the start of the quarter, April-June hog slaughter was forecast to drop by 3 to 4%, compared to last year. Through the first full week of May, federally inspected spring quarter slaughter was 1% smaller than in 2002. So, if slaughter expectations are going to be met, hog slaughter is going to have drop sharply the next few weeks.

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.

Cold Storage Stocks Down

Burdensome pork stocks had a negative impact on wholesale pork and hog prices during most of 2002. Cold storage stocks are still large by historical standards, but have finally dropped below last year’s inventory. Pork cold storage stocks at the end of February were 1.3% below a year ago, the first year-to-year decline since November 2001. Hog slaughter below a year ago should encourage further drawdowns of pork cold storage stocks the rest of 2003, which should prove supportive of wholesale pork and hog prices.

Exports Up, But So Are Imports

Pork exports during January-February were up about 4% compared to last year. The modest rise in total pork exports was driven by a moderate increase in exports to Japan (+5%) and S. Korea (+146%). But improving exports to these two markets were offset by smaller pork exports to Canada, Mexico, and Russia. As a result, net pork exports (exports minus imports) fell 22% below a year ago during the first two months of 2003.

Slaughter hog imports from Canada fell sharply during January and February, dropping 22% below a year ago. In contrast, feeder pig imports rose about 13% compared to 2002’s, so total hog imports were virtually unchanged from a year ago.

Base Price Forecasts

National base hog prices finally started increasing seasonally as hog slaughter volume fell below a year ago. Look for base prices to trade up into the low to mid-$60’s (carcass weight) by late spring and for the spring quarter average to wind up in the mid-to upper $50’s. Year-to-year declines in hog slaughter this summer should also prove supportive of hog prices. Summer quarter base hog prices are also likely to average in the mid to upper $50’s, again supported by a year-to-year reduction in hog slaughter. Look for prices this year to be much higher than last year in late August and early September. During 2002 hog slaughter surged and prices collapsed during this time frame. Fortunately, that shouldn’t happen again this year and producers will be the beneficiaries in the form of higher prices.

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 (05/09/03) 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.