Slaughter up 7.7% from a year earlier

Ron Plain

Santa Claus visited hog producers again on December 28. The December 1 Hogs and Pigs report came in substantially more bullish than the trade estimates. The estimate of all hogs and pigs on farms December 1 (100 percent of a year earlier) was about 1.5 percent smaller than the average of the trade estimates. The breeding herd at a little over 99 percent of 2003 was nearly 2 percent below the trade estimates, and the market herd at 100 percent of a year ago was also about 1.5 percent below the trade estimates. Most of the futures market contracts opened limit up, but all contracts traded some during the day on Wednesday with substantial volume in the February and April contracts.

The report came in about 1 percent below our estimates. However, the breeding herd estimate by USDA at 99.3 percent of 2003 certainly is not inconsistent with our gilt and sow slaughter estimate. USDA reduced the estimate of the breeding herd on September 1, 2004, with the revised data our gilt and sow slaughter data indicated---a breeding herd at 99.8 percent of 2003 for December 1. The potential sample error of either set of data is more than 1 percent.

The big variable continues to be what will happen to demand as we go through 2005. The probabilities appear quite high for 2005 US slaughter numbers to be within 1 percent of 2004.

We keep reading that the number of people on the low-carb diets has declined substantially from the peak in the numbers in 2004. However, we cannot identify any slippage in the demand for live hogs through November. The drop in prices in the first 3 weeks of December was quite large, but the prices at the low in December were about what most people expected as late as October. The price tally this week adds confidence to the belief that demand is still strong for hogs and pork.

If we can hold most of the demand for live hogs that we have as we enter the new year, hog prices in 2005 will likely average close to the 2004 average. Our current estimate is for an average between $47-$50 per cwt for live hogs at the terminal markets, $50-$53 per cwt for 51-52 percent lean barrows and gilts US basis, and $67-$72 per cwt net carcass prime for all hogs sold by independent producers.

Needless to say, feeder pig producers will have a good year if the above conditions come to pass. Certainly the size of the 2005 corn crop will be important to pig prices in the last half of 2005.

Our gilt data shows no signs of breeding herd growth through last week. Usually the first sign of breeding herd growth is in reduced sow slaughter. For the 4 weeks ending December 18, sow slaughter was 4.4 percent above a year earlier.

Cash hog prices this Thursday morning were steady to $5.00 per cwt higher compared to a week earlier. The top cash live prices for select markets were: Peoria $45.50 per cwt, St. Paul $48.00 per cwt, Sioux Falls $50.00 per cwt and interior Missouri $43.00 per cwt.

The average weighted base negotiated price for carcasses was $2.18 to $5.56 per cwt higher compared to last Thursday morning. The average carcass prices by area were: western Cornbelt $66.54 per cwt, eastern Cornbelt $60.23 per cwt, Iowa-Minnesota $66.04 per cwt and nation $63.28 per cwt.

Slaughter for the week ending December 25 was up 7.7 percent from a year earlier. Trade estimates are for a slaughter this week to be about the same as a year earlier. Slaughter under Federal Inspection this week last year was 1,797 thousand head.

It looks like the border to Canada will be opened to young cattle on March 9, 2005. However, after the announcement on Wednesday, the Canadian Food Inspection Agency announced a 10-year-old dairy cow had tested inconclusive for BSE. But, this last announcement may not impact the first announcement because a 10-year-old cow would have been born before the feed ban in 1997.

Happy New Year!