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Slaughter up 4% from last year

by 5m Editor
3 January 2004, at 12:00am

US Weekly Hog Outlook, 2nd January 2004 - Weekly review of the US hog industry, written by Glen Grimes and Ron Plain.

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The December 1 Hogs and Pigs report came in a little more positive than our estimates, but more negative than the trade estimates. Some futures contracts traded limit down on Wednesday after the report.

The USDA report showed the total herd up 1%, the breeding herd down 1% and the market herd up 1% from 12 months earlier.

This report is clearly not what hog producers need. Our current estimate is for a 102.3 million herd slaughter for 2004, which if it comes true, will be a new record high in both number of head and pounds of pork produced.

These larger supplies along with the potential for weaker demand due to lower beef prices is not good news.

Productivity growth in the fourth quarter of 2003 appears to have been quite robust. The breeding herd on September 1 was down about 2.5%, but farrowings were up 0.7% from a year earlier. Litter size for September -November was also up 1.1% compared to a year earlier. This adds up to a growth in productivity of over 4% without including the heavier carcass weights likely for these hogs. In our opinion, productivity growth in the hog industry is likely to continue for some time.

With productivity growth at 2% for the next several years, supplies will keep growing faster than demand unless producers start reducing the breeding herd more than currently indicated.

For hog producers with above-average costs of production, the probabilities are high for losses on average for the next several years. It would probably pay off financially for these producers to look at the other options they have for an occupation.

Hopefully, this report will be a wake-up call to all hog producers in North America. If all hog producers would sell the least productive 5% of their breeding herd in the next few weeks, it would add substantially to hog prices in late 2004. If hog producers do not reduce the breeding herd, the high cost 5% of their products will lose money for practically all hog producers in 2004.

Demand for pork at the consumer level for January - November was down 1.6% according to USDA data compared to 12 months earlier. Demand for live hogs for the same period was up 1.6% due to narrower marketing margins.

We believe the USDA data may be underestimating the actual demand for pork at the consumer level because a substantial portion of pork is pumped, which means consumers are buying more pounds of pork than estimated by USDA.

The demand for pork at the consumer level for the last quarter of 2003 was above a year earlier. Pork prices in October and November were up 2% in deflated prices and consumption was larger than a year earlier.

Cash hog prices performed much better this week than last week. Cash hog prices this Friday were $3.75 to $6.00 per cwt higher than a week earlier. The top prices for live hogs for select markets on Friday were: Peoria $35, St. Paul $N/A, Sioux Falls $36.50 and interior Missouri $34.

The average weighted price for 185-pound carcasses with 0.9 - 1.1 inch back fat, 6 square-inch loin 2 inches deep by area for Friday morning were: western Cornbelt $49.33, eastern Cornbelt $45.08, Iowa-Minnesota $49.36 and Nation $48.74.

Slaughter this week under Federal Inspection was estimated at 1794 thousand head --- up 3.8% from a year earlier.

5m Editor