Slaughter continues to run above expectations

US Weekly Hog Outlook, 31st October 2003 - Weekly review of the US hog industry, written by Glen Grimes and Ron Plain.
calendar icon 1 November 2003
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Ron Plain
Ron Plain

We continue to be concerned about the possibility that producers are building the breeding herd a little. Sow slaughter from domestic producers for September through the week ending October 18 has been down 64,491 head from the same weeks in 2002. This information comes from using the weekly import of live hogs from Canada data. There have been rumors that the number of cull sows being imported from Canada is overestimated. We cannot confirm this error from our contacts in USDA.

Gilt slaughter, since the last of September, is running below a year earlier, but is at the level that indicates equilibrium as to sow herd size. However, the reduction in sow slaughter this year from last for these 7 weeks amounts to about 1 percent of the breeding herd.

In our opinion this data indicates producers have at least stopped the decline in the breeding herd and may have started building the herd a little.

The only reason why we can believe producers could be building the breeding herd is that in the past when hog producers had a low income or loss year, prices improved as producers reduced production. The trouble in this cycle is that production has not been reduced for a full year. In fact only the 2nd and 3rd quarter of 2003 may have reduced production of pork from last year. For the 1st 9 months of 2003 pork production is up 0.1 percent from the same period in 2002.

We hope we are being too pessimistic for the next 5 years, but we expect profitability in the hog industry to be close to the past 5 years. If this is a correct assessment of the situation in the industry now would be a good time to close non-performing units as to production characteristics of profitability. If enough producers would take this action, profitability in the industry will be better than we expect.

Even though times in the pork industry for 2003 are tough, they could be worse. With pork production up a little for the 1st 9 months of the year, live hog prices have been nearly 12 percent better that the same period last year.

These higher prices than in 2002 do not appear to come from increased consumer demand. Retail pork prices for these 9 months were down a little over 1 percent based on USDA data. The USDA data indicates the stronger live prices --- demand growth at live level of nearly 3 percent --- are from squeezed marketing margins mostly for the processing and retail margins. Packer margins were down less than 1 percent for the period compared to over a 6 percent decline for retails and processes.

Slaughter continues to run above expectations but is smaller this week than a year ago due to a very large number this week in 2002.

We believe October has set a new record high in pork production for a month. October 2003 slaughter has been above October 1998. However, one of the reasons for the larger slaughter this year in October than in 1998 is that we have 1 more weekday in October 2003 than in 1998. On a daily basis slaughter for 2003 has been the same to up a little from 1998.

This has been another tough week as to hog prices. The terminal markets this Friday are both higher and lower than a week earlier but county markets are from steady to $4.27 lower on a carcass basis this Friday than 7 days earlier.

The top prices at the terminal markets this Friday morning were: Peoria $31, St. Paul $34.50, Sioux Falls $34.50, and interior Missouri $30.25.

The prices for 185 pound carcasses with 0.9-1.1 inch back fat 6 square inch loin 2 inches deep by region was: western Cornbelt $46.37, eastern Cornbelt $44.63, Iowa to Minnesota $46.54 and Nation $45.36.

Slaughter this week under Federal Inspection was estimated at 1241 thousand head --- down 0.4 percent from a year earlier.

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