The effect of seasonality on production and hog prices

US - Regular report by Ron Plain on the US Swine industry, this week reporting on the dichotomy between the reduction in seasonal variation of production and the steady increase of seasonal variation in hog prices.
calendar icon 28 July 2003
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Ron Plain
Ron Plain

Seasonality is a major factor when it comes to hog production and prices. Despite technological advances and a wholesale movement of hogs from outdoor to indoor housing, fourth quarter hog slaughter has been higher than either the second or third quarter every year since 1980.

There are two major factors driving this pattern. First, hogs hate hot weather and love cool weather. Thus, weight gains are much faster in the fall than during the summer, leading to higher slaughter weights during the fourth quarter. Second, sows instinctively realize that late summer is a poor time to become pregnant (winter farrowing) and that early winter is a good time to become pregnant (spring farrowing).

But, producers have made some progress in lessening this seasonal variation. During the 1970s, average daily pork production in November averaged 29.7% more than in July. During the 1980s, November pork production averaged 24.3% higher than in July. During the 1990s, it averaged 20.3% higher and for the first three years of this decade it has averaged 19.1% higher.

Producers still have a long way to go to eliminate the seasonal variation in pork production, but progress is being made. This is not the case when it comes to eliminating the corresponding seasonal variation in hog prices.

During the 1970s, barrow and gilt prices in July averaged 13.1% higher than in November. During the 1980s, July hog prices averaged 14.9% higher than in November. During the 1990s, July prices averaged 24.7% higher and for the first three years of this decade July prices have averaged 39.5% higher than November barrow and gilt prices.

The seasonal variation in production is slowly decreasing; but the seasonal variation in hog prices is steadily increasing. This dichotomy appears to be caused by changes in the packing-processing industry. Modern efficient packing plants have less capacity to adjust their production levels than did plants 30 years ago. Thus, each fall when hogs are surplus, packers are less able to handle the extra numbers and hog prices plummet. In the summer when hogs are in short supply, packers bid very aggressively in an attempt to avoid slowing their chain speed.

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