Odds High For Seasonal Price Increase

US Weekly Hog Outlook, 7th April 2006 - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.
calendar icon 8 April 2006
clock icon 4 minute read
Ron Plain
Ron Plain

The hogs and pigs report for March 1 came in more bullish than we expected but relatively close to trade estimates. The total hog herd was up 0.7%, the breeding herd was up 1.4%, and the market herd was up 0.6%.

We certainly hope the report in an accurate estimate of what marketings will be in coming months. With the large supplies of beef --- up 8% in recent weeks --- and record storage stocks of poultry and production the pork industry needs smaller supplies not larger.

We are afraid we are losing some of the strong demand we had for live hogs in 2004 and 2005 because of the decline in high protein diets. The larger supplies of poultry and beef will also likely add to the deteriorating demand for pork and live hogs.

Even with some smaller inventories than expected, projected markets for 2006 are a record high and we expect large numbers of hogs again in 2007.

If marketings are different than those indicated by the March 1 market inventories the odds favor larger rather than smaller markets then indicated by the March numbers.

March slaughter was up 2.9%, but 180 pounds and heavier market inventories were only up 1.7%. Also, farrowing intentions in coming quarters were up less than the 1.4% increase in the breeding herd. This data suggests productivity growth would actually decline rather than grow in coming months. We doubt that will occur. Disease problems have been challenging this year and may have at least stopped productivity growth for a few months.

If marketings in the second quarter are no larger than indicated by the March report, the seasonal decline in slaughter from the first to the second quarter will be substantially larger than the average for the past 5 years. Our current estimate for the second quarter slaughter is for a 4.8% decline from the first quarter. This compares with a 2.7% decline from January-March to April-June on average for the past 5 years.

This is one of the reasons we believe the odds are high for at least some seasonal increase in prices as we go into spring.

The crop industry received a surprise as to planned acreage of corn and beans in the March planting intentions.

Corn acreage planting estimates by USDA were about 2 million acres less than trade estimates. Soybean planting acreage was even more of a shock than corn acreage. The soybean intentions are for a 4.8 million acreage increase from 2005.

These data point to higher corn prices and lower soybean meal prices for next year. Some estimates are for corn to average $2.75 per bushel for the 2006-07 marketing year. This is not good news for hog producers unless they also grow most of their corn needs.

Hog slaughter continued larger this week with prices under pressure. Top cash prices Friday were steady to $1.75 lower compared to a week earlier. The top cash live prices this Friday for select markets were: Peoria $35.50 per cwt, St. Paul $37.00 per cwt, Sioux Falls was unavailable, and interior Missouri $36.50 per cwt.

Weighted average base negotiated carcass prices this Friday morning were $1.35-$3.51 lower compared to 7 days earlier. These carcass prices by area were: western Cornbelt $50.58 per cwt, eastern Cornbelt $52.70 per cwt, Iowa-Minnesota $50.88 per cwt, and nation $51.77 per cwt.

Slaughter this week under Federal Inspection was estimated at 1992 thousand head up .03% from a year earlier.

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