US Swine Economics Report - 1st December 2003.

US - Regular report by Ron Plain on the US Swine industry, this week looking at how prices have remained surprisingly strong despite the high slaughter figures.
calendar icon 3 December 2003
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Ron Plain
Ron Plain

In case you haven't notice, we've been killing a lot of hogs lately. October's hog slaughter (9.6387 million head) was the biggest for any month, ever. The slaughter on November 11 totaled 399,571 head, the third largest daily kill ever. Last Saturday's hog slaughter was estimated by USDA to be 319,000 head, which makes it the largest Saturday kill ever (at least by my records).

It currently looks like fourth quarter hog slaughter will come in a bit under 27.4 million head, making this the second largest quarter ever, after the fourth quarter of 1998. For all of 2003, we're looking at a slaughter total close to 100.6 million hogs, the third largest yearly total behind 1999 and 1998.

This is not the way it was supposed to be. Hog producers have lost money in 21 of the last 25 months. Red ink is supposed to lead to reduced hog slaughter. Indeed, USDA's September hogs and pigs report estimated the market hog inventory to be 1.7% smaller than a year ago. Since September 1, hog slaughter has been more than 900,000 head above that implied by the pig report. About 40% of this 900,000 head increase is due to more slaughter hogs being imported from Canada. The remaining 60% appears to be due to underestimating the U.S. market hog inventory on September 1.

The good news in this sea of hogs is that prices have remained surprisingly strong. Both October and November base carcasses prices for negotiated barrows and gilts in Iowa-Minnesota averaged more than $9/cwt above year-ago levels.

These stronger-than-expected hog prices are due in part to middlemen accepting tighter margins than last year. The spread between hog and retail pork prices has been below year-ago levels in every month of 2003, except for February.

Another factor in the stronger-than-expected hog prices could be spillover from high beef prices. Pork prices may finally be getting a little support from high beef prices, and I do mean little. October retail pork prices were 9.1 cents per pound higher than in October 2002. Retail beef prices in October were 67.5 cents higher than a year earlier.

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