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US Hog Prices Exceed All Expectations

by 5m Editor
17 February 2004, at 12:00am

US - Hog prices in the US market reached its highest levels since the third week of June last year, exceeding all expectations and first quarter price forecasts.

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Hog prices for early 2004 was less than optimistic following higher hog slaughter numbers in the final quarter of 2003. Following the discovery of mad cow disease in the US at the end of December, US hog prices was expected to fall further as hog and pork prices collapsed in Canada upon the mad cow disease outbreak in May 2003.

The great difference in percentage of Canadian pork produced for exports compared to those in America ensured that US pork prices remained steady. In Canada, more than 50% of its beef output was for exports. Following the export bans on Canadian beef, the excess of Canadian beef in the domestic market forced meat prices to an all time low. Excess Canadian pork was consequently shipped to the US.

The number of Canadian hogs and pigs shipped into the U.S. during 2003 was about 7.36 million head, according to U.S. Department of Agriculture data, smashing the previous annual record of slightly under 5.97 million set in 2002.

The extra hogs from Canada contributed to larger U.S. slaughters and softened the price outlook for at least the first few months of 2004 on ideas that Canadian supplies would continue to flow into the U.S. during that period.

However, what happened to hog and wholesale pork prices so far in 2004 has been phenomenal, industry sources said. After the U.S. BSE case was announced in late December, most of the country's trading partners immediately banned imports of U.S. beef. In the weeks before the BSE case occurred, wholesale beef prices were still very high but were coming down from record highs hit in October. U.S. grocers had already set their meat promotions for January using more pork.

The increased advertising of pork resulted in more volume of sales domestically. At the same time, international customers reportedly were pursuing additional supplies of U.S. pork since they were not buying U.S. beef and could not find enough beef elsewhere.

Adding to the dilemma of tightened meat supplies in Asia was the spread of high pathogenic avian influenza, or bird flu. Suddenly finding poultry supplies in the region devastated by the disease and some consumers there fearful of becoming sick if handling or eating chicken, demand for pork became even stronger.

As of February 13, the USDA did not yet have export data available for January as the agency's reports are normally released about seven weeks after the end of the reported month. However, anecdotal reports from industry sources along with significantly higher pork loin prices versus a year ago pointed to a substantial increase in U.S. pork exports.

In 2002, the U.S. exported 8.18% of its pork production, and in 2003 the USDA projected that exports would move up to about 8.56% of production. In the latest supply-demand outlook report, USDA projects 2004 pork exports to be 1.765 billion pounds, or nearly 8.8% of production.

The various factors have made it extremely difficult to develop a clear view of what's ahead for hog and pork prices, the analysts said. And, the short-term outlook can change abruptly whenever another event occurs, they said.

Chuck Levitt, senior livestock analyst with Alaron Trading Corp., recommends that hog producers remain current on their marketings. He said discounts in Chicago Mercantile Exchange lean hog futures from April forward, versus current cash prices, are healthy for the hog market in the long term because it would encourage producers to keep shipping hogs on time.

Glenn Grimes, agricultural economist at the University of Missouri, said the "good news" for hog producers has been that despite weekly slaughters in January having run about 5% above a year ago, hog prices were about 15% higher than a year ago.

"We (U.S.) have very strong demand (for pork) so far in 2004," Grimes said. "If we can hold onto this level of demand, our earlier price estimates for 2004 are too low." If demand holds, prices will probably be $1 to $2 per hundredweight higher, live basis, than his earlier forecasts of $36 to $39 (51%-52% lean) despite expectations for 2004 pork production to be up about 2% from 2003. Prices in 2003 averaged $39.51, Grimes said.

The mad-cow cases, more people on high-protein/low-carbohydrate diets along with increased pork exports are driving the stronger pork prices, Grimes said.

Grimes also said lean hog futures have more caution built in than he feels is necessary. "It is very, very unusual to have higher hog prices in February than they are in May," he said. Over the past seven years, with the exception of 2002 when April and May slaughters far exceeded projected levels, live- based cash prices in May exceeded those of February by an average of more than $8.50, he said.

Analysts believe that the current bird flu outbreak in the US could have a deep impact on meat and poultry prices. If more bird flu cases are reported, US chicken exports will be severely compromised, leaving greater poultry numbers available for domestic consumption. Beef and pork prices would therefore be affected.

Source: eFeedLink - 16th February 2004

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