Ron Plain

Hog slaughter under Federal Inspection set a new record high on Tuesday, September 7 at 407,422. We have had 8 days of slaughter above 400 thousand head and 6 of those days accrued the 2 weeks ending September 11. There have been several days since the weeks ending September 11 with a preliminary slaughter estimate of 400 thousand.

Since August 28, we have had 18 of the top 27 slaughter days of record including preliminary estimates. Live hog prices on Thursday of this week were from $5-8 per cwt higher than on August 30. We cannot be sure demand has peaked for pork at this time.

Retail pork prices in August were a record high at $2.885 per pound---up 1.3% from July of this year and up 6.6% from August of 2003.

Retail pork prices for the first 8 months of 2004 were up 5% from a year earlier. According to USDA all of the increases in retail prices were bid into live hog prices plus some. The total marketing margin for January - August was reported to be down 3.2% from a year earlier. Live hog prices for these 8 months were up over 28% from a year earlier.

This is unusual for marketing margins to shrink in a year with record slaughter levels. Hog slaughter for the year through week ending September 11 was up over 3% from the same period in 2003 and will likely approach 103.8 million head in 2004---up about 2% from the record slaughter year in numbers in 1999.

Good hog producers are doing very well in 2004 financially. Some trade estimates are that the hog producers have improved their net equity by 10% this year with prospects of increasing net equity another 10% by some time in the first half of 2005.

This is not the time for producers to use some of this income to expand the breeding herd. Even with the unbelievable strong pork demand, the chances for this demand to continue to grow through 2005 are probably quite low. Past history would suggest the probabilities are quite high for some demand loss in 2005 from 2004. When measuring all of the demand of 2004 through the next two years, productivity growth will likely push hog prices down substantially during this period with out breeding herd growth.

In fact, productivity growth of 3% in 2005 could push production to a level that would challenge hog slaughter capacity in the fourth quarter of 2005. Hopefully by some time not to deep into 2006 the new hog slaughter plant in St. Joseph, Missouri, will come on stream.

We now believe there is a good chance that hog slaughter in the fourth quarter of this year will likely be close to 28 million head. Even with 28 million head, we believe hog slaughter capacity is large enough to handle this number this year. However, on September 7 the industry was probably running at around 98% of capacity. Therefore, we will not have a lot of excess slaughter capacity this fall.

Cash hog prices this Friday were from $3.00 to $6.50 higher than 7 days earlier live and up $2.57 to $5.35 per cwt carcass basis.

The top live prices for selected markets this Friday were: Peoria $55.00, St. Paul $60.00, Sioux Falls $59.50, and interior Missouri $55.50.

The average weighted prices for 185# carcass with 0.9-1.1-inch back fat, 6 square inch loin, 2 inches deep by area were: western Cornbelt $80.50 per cwt, eastern Cornbelt $77.17, Iowa-Minnesota $80.49 and nation $78.91.

Slaughter this week under Federal Inspection was estimated at 2,113 thousand head---up 6.3% from a year earlier.

There were some surprises in the September Hogs and Pigs. The market herd was estimated to be up 1%.

We believe the odds are very high that the market inventories are larger than USDA estimates. We do not agree with the 1% increase in the breeding herd.

The farrowing intentions are up 1% for both the fourth quarter of this year and the first quarter of 2005. We expect the farrowing to be larger than the intentions.

Our estimate for the fourth quarter 2004 slaughter is 28 million, up 1.4% from last year. Our terminal market price forecast for this quarter is $47-50 per cwt.

A more detailed summary of the report will be on the Agricultural Electronic Bulletin Board by 12 noon September 27, 2004.