US Swine Economics Report - 20th October 2003.

Regular report by Ron Plain on the US Swine industry, this week reporting that October hog prices have been driven much more by what's happening in the cattle market than by the number of hogs being slaughtered.
calendar icon 20 October 2003
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Ron Plain
Ron Plain

October hog prices have been driven much more by what's happening in the cattle market than by the number of hogs being slaughtered.

Last week's federally inspected hog slaughter, 2.118 million head, was the 11th largest weekly kill ever. The amount of pork in those hogs, 415.5 million pounds, was the tenth largest weekly total ever. Unless something changes abruptly, October hog slaughter will be the largest total for a month, any month, ever.

Yet, despite this huge, and largely unexpected, onslaught of pork, hog prices really aren't bad for mid October. (Granted, they are $4 below breakeven, but that's not unusual for October.) Terminal market live hog prices spent most of last week in the $36-37 range. That's $5 higher than for the same week last year. Iowa-Minnesota carcass prices averaged $52.41/cwt on the Friday afternoon report, $11.36 higher than a year ago.

Hog prices aren't much different than they were eight weeks ago, despite hog slaughter that is running 10.5% higher and slaughter weights that are 6 pounds heavier.

What's gone right for the hog market? The answer is simple: fed cattle prices above a dollar per pound of live weight. Slaughter steer prices are an unbelievable $40/cwt higher than at this time last year. The cutout value of choice carcasses on Friday was $2.01 per pound. A year ago, the choice cutout value was $1.10/lb.

These record cattle prices are a direct result of the May 20 border closure with Canada, which cut us off from the source of 9% of the beef Americans consumed in 2002. It has taken four months, but that one cow in Alberta with BSE has finally depleted our supply of slaughter-ready cattle, driven beef prices to record levels and given some spillover support to hog prices.

The December lean hog contract on the CME closed Friday at $59.67, $7 above Friday's cash hog price. The last time December hog prices averaged more than $3 above October was in 1985. It will take a continuing shift in consumer preference away from high-priced beef and to low-priced pork to make December's cash hog price higher than October's. Whether this occurs or not, hog prices during the fourth quarter are likely to average far above the $40.36/cwt of carcass weight they averaged during the fourth quarter of 2002.

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