Ron Plain

Wow, what a month! Hog slaughter during September 2004 was 5.21% higher than in September 2003 and 4.38% higher than for any previous September. Federally inspected hog slaughter on September 7 totaled 407,422 head. That is 1,334 more than for any other day in history. Of the all-time 10 largest hog slaughter days, six were in September 2004 and two were on the two previous days in August. More hogs were slaughtered during the week ending on Friday September 3, than for any five-day period in U.S. history.

Given this unexpected flood of hogs (USDA's June Hogs and Pigs Report indicated September hog slaughter would be up 2.2% from the year before), one would have expected a price disaster. Yet, the national average base carcass price for hogs was $7.10/cwt higher at the end of September than at the start. September 2004 hog prices were 1.2% higher than August prices and 35.8% higher than in September 2003.

So, as has been the case all year long, hog slaughter is up and hog prices are up more.

Thus far in October, daily slaughter is down slightly compared to September and prices are moving lower. As an economist, it is no small paradox that slaughter and price seem to be moving in the same direction. After all, supply and price are supposed to move in opposite directions.

My hypothesis as to what's causing this anomaly is that the pork pricing/marketing process is getting stretched out through forward pricing agreements. My guess is that during September packers found themselves needing to slaughter lots of hogs to be able to deliver on commitments made earlier when expectations were for lower prices. Thus far in October, packers don't seem nearly as interested in chasing hogs. Presumably that is because of tight slaughter margins and a slowing of pork movement caused by September's run-up in prices.

As has been the case frequently in the past decade, stability or predictability in hog prices is very difficult to achieve.