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September 2001: Review of the U.S Hog Market

by 5m Editor
6 September 2001, at 12:00am

Our Monthly look at the trends in US Hog Market and what effect thes may have on future prices; Hog Prices Start Seasonal Slide, Hog Slaughter Still Below Forecasts, July Farrowings Down, Futures Based Cash Price Forecasts - Written by James Mintert, Kansas State University.

Hog Prices Start Seasonal Slide

Seasonally, hog prices start weakening in late August and early September. This year prices remained strong about a week longer than typical over the last five years, but prices did start to soften in late August. During the first week of August, Iowa-S. Minnesota barrow and gilt prices averaged $72.62 per cwt. (carcass weight), but by the last week of the month the weekly average declined 10% to $65.33. Through August, summer quarter prices averaged $71.49 per cwt., 10% higher than last year.



The decline in barrow and gilt prices was precipitated by a sharp decline in pork belly and pork trimmings prices. For example, belly prices declined 13% in late August, dropping from a weekly average near $94 to $82 in just one week. Similarly, 72% trimmings values declined from $57 to $49.50 the last week of the month.

Hog Slaughter Still Below Forecasts

Except for the last week of August, hog slaughter this summer has consistently been smaller than last year, averaging 2.8% below a year ago during July-August. So, slaughter has fallen far short of the 1% increase forecast following release of the June Hogs and Pigs report.

This summer's slaughter shortfall makes projections for fall quarter slaughter tenuous. Based upon USDA's estimate of the spring pig crop, commercial hog slaughter this fall was originally forecast to wind up about the same as last year's 25.7 million head. Based upon what's taken place this summer, it would not be surprising to see this fall's hog slaughter fall 1 or 2% below a year ago.

July Farrowings Down

USDA's August Hogs and Pigs report, released on August 31, indicated sow farrowings during July were actually smaller than a year ago. Farrowings were up modestly during May (+0.5%) and June (+1.3%), but declined 1.5% during July, according to USDA. And USDA's estimate of the number of pigs per litter born during July increased just 0.7%, in contrast to the whopping 1.5% increase recorded during June. As a result, the July pig crop estimate was down 0.9% compared to a year ago.

USDA's monthly hog inventory reports have only been available for a short while, so it's not clear yet how reliable they are. In particular, month-to-month variations in pig crop estimates are likely more extreme than subsequent slaughter variations. As a result, combining pig crop estimates over a couple of months likely provides a more meaningful estimate of future slaughter changes.

Pigs born this summer will provide the bulk of hog slaughter supplies this coming winter. Combining the June and August 2001 pig crop estimates and comparing them to last year reveals that the number of pigs born this summer is up slightly (0.9%) compared to last year. The modest increase in the pig crop is close to, but slightly smaller than, the summer farrowing intentions reported on the June quarterly Hogs and Pigs report indicating that expectations for modest year-to-year slaughter increases in 2002 are still on track.

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 (8/31/01 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.