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Negative price impact of BSE carried across to the pork industry

by 5m Editor
27 December 2003, at 12:00am

US Weekly Hog Outlook, 26th December 2003 - Weekly review of the US hog industry, written by Glen Grimes and Ron Plain.

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Ron Plain
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The negative price impact of finding a cow in Washington State with mad cow disease carried across to the pork industry. The nearby 5 first lean hog futures contracts ended the trading day on December 24 at limit or near limit down. Finding mad cow disease in this country will be negative to pork demand but it is not likely to be a very big impact. Lower beef prices will likely be the major impact because of the cross-demand relationship between beef and pork. For the pork industry, the good news is that the cross-demand relationship between beef and pork appears to be quite low.

However, the bottom line is that the lower beef prices, likely from this event, will contribute negatively at least a little to a pork situation in 2004 that was not very positive to begin with.

Hog producers could improve this situation sharply by mid 2004 by selling off the highest cost or least productive 5% of there sow herd. All producers have poor producing animals in their herd. A 4% reduction in production would result in a 12-15% increase in prices with the current elasticities we believe we have.

The average of the trade estimates for the December 1 Hogs and Pigs report is all hogs and pigs 99.6% of 2002, kept for breeding 98.6% and kept for marketing 99.7% of last year. We hope these estimates are close to correct but we believe the odds are low for the report to be this positive. We expect the total herd at 102% of last year, breeding herd at 99% and market herd at 102%.

Slaughter for the 4th quarter makes our estimate look the most likely to be the real world. It is possible that the increased production from the U.S. herd in October-December of this year was due to productivity growth and that would not carry over into 2004, but not likely in our opinion.

Cash hog prices lost $0.50 to $4.00 this holiday shortened week from a week earlier. The average carcass price for a 185 pound carcass with 0.9-1.1 inch back fat 6 square inch loin 2 inches deep by area was Western Cornbelt $46.15 per cwt, Eastern Cornbelt $46.37 per cwt, Iowa-Minnesota $45.99 per cwt and Nation $46.26 per cwt.

Slaughter this week under Federal Inspection was estimated at N/A thousand head --- down N/A from a year earlier and the 1st week we have been below last year since the 1st of November.

Our Friday lean hog futures contracts opened mixed with some contracts up and some down a little. And by noon all contracts had gained back at least what was lost on Wednesday. Cash live hog prices on Friday morning by market was: Peoria $29 per cwt and Intereior Missouri $30.35. Carcass prices this Friday morning were from $0.08 per cwt to $0.82 per cwt lower than 7 days earlier.

5m Editor