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Ron Plain

We continue to find more hogs than expected. After 2 weeks in mid-May with slaughter below 1,850 thousand head, we have moved back into the upper 1,800 thousand slaughter per week.

Both pork product prices and live hog price have been under strong downward pressure this week.

Loins with ¼-inch trim at noon Friday were down $22.39 per cwt for the week at $128.11 per cwt, and Boston butts with a ¼-inch trim were at $86.00 per cwt, down $16.45 per cwt from 7 days earlier. 7-20# hams were the exception with an increase of $2.80 per cwt for the week and were at $60.00. 14-16# bellies were down $7.80 per cwt at $116.20 per cwt at noon Friday.

We believe most of the price problem is supply and not demand. Our demand index for January-April still showed a gain of 3.7 percent from a year earlier. This is lower than for January-March, but we believe the first 3 months data overstated the demand growth due to the number of slaughter days this year compared to 2003.

Demand for live hogs for January-April were still very strong with a gain of 12 percent in our demand index.

We also believe the B.L.S. price series for retail pork prices is underestimating the retail price. For example, this price series shows retail loin or pork chop prices substantially below a year earlier for January-April. However, wholesale loin prices are substantially above last year. We doubt retailers and processors are reducing their margin as much as the data indicates. If the retail price if too low, the data is understating demand growth.

If we do not reduce slaughter levels from the last two weeks as we go through June, we probably had the high in hog prices for the year in mid-May.

Last year we had three weeks in late June and early July with slaughter below 1.8 million head. If slaughter for a couple of weeks does decline to near 1.8 million per week, there will likely be another price rally of significance this summer.

Top live hog prices for this Friday morning were $2.50 to $4.00 per cwt below a week earlier. These top prices for select markets were: Peoria $51.00 per cwt, St. Paul $51.50 and interior Missouri $52.50.

The weighted average price for 185-pound carcasses with 0.9-1.1-inch back fat, 6-square-inch loin, 2 inches deep was $4.88 to $5.50 lower than 7 days earlier. The carcass prices by area were: western Cornbelt $73.41, eastern Cornbelt $74.52, Iowa-Minnesota $72.99 and nation $74.09.

Slaughter this week under Federal Inspection was estimated at 1877 thousand head---up 24 percent from a year earlier, but not comparable because Memorial Day was in this week in 2003.

Sow slaughter so far this year is largest relative to the breeding herd in recent history. In our opinion, we are reducing the breeding herd. Will it be enough to offset productivity growth and possible Canadian growth?