Pork Commentary: Hog Prices Drop $10 per Head

CANADA - This weeks North American Pork Commentary from Jim Long.
calendar icon 27 September 2006
clock icon 4 minute read

Hog prices came under pressure last week with the Iowa-Minnesota price declining 5 cents per pound from Friday to Friday. Iowa-Minnesota averaged 62.85 on Friday.

Some reasons for the decline:

  • Lots of hogs coming to market, 2.133 million last week. This is 37,000 more than the same week a year ago. Packers will pay what they have to but no more than they have to, to keep the plants working. Producers continued to deliver hogs there that met packers supply needs at ever-low prices. Packers will always pay less if they can.

  • Pork cut-outs also fell last week coming in at 68 cents per pound Thursday. This is 4 cents lower than the previous Thursday. These cut-out price declines pushed packers to lower purchase prices to maintain their margin.

  • Lean hog prices came under pressure from a perceived bearish pork in cold storage report.

    USDA Cold Storage Report
    Aug 31 2005 July 31 2006 Aug 31 2006 06 % 05
    Bellies 22,149 37,328 13,930 63%
    Total Pork In Storage 414,468 413,454 404,892 98%

  • The belly draw down in August was 23 million lbs which is positive. Unfortunately, the experts’ average guess was 26 million lbs, so the 23 million lb amount was perceived bearish. This bearishness put pressure on lean hog prices and lean hog futures. The upside is that bellies and pork in cold storage are lower than a year ago.

  • Another factor effecting pricing is the overall decline in commodities. The CRB Commodities Index was 360 in July. It is now 300. A 20% decline in two months. Hedge Funds and Future Trades are considering the overall commodities trend. While, historically lean hog prices have little co-relation to other commodities outside the ag-sector, the general decline in several commodities (natural gas, oil, gold) is still affecting the pork sector. We do not believe this trend will continue to hurt the pork sector much longer.

USDA Cattle Report

There will be likely price pressure on cattle and hogs this week from the USDA Cattle on Feed Report.

On feed Sept 1 110%
Placed in August 115%
Marketed in August 102%

Of significance cattle placed on feed in August over 700lbs. was lower than a year ago.Most of the 10% increase in August cattle placements was in the under 600 lb. category. These will not be coming to market very soon and in itself doesn’t necessarily reflect more cattle in total inventory but an indication of location. Something like moving pigs out of the nursery at 40 lbs instead of 60 lbs and then just counting the finishing inventory and saying that there are more pigs coming to market.

Huffing and Puffing

Lots of background noise from some politicians and farm organizations over the intended purchase of Premium Standard Farms by Smithfield Foods. Must be an election year with the politicians pandering to the voters. Expect Smithfield to own Premium Standard Farms. Free enterprise cannot be denied and Smithfield’s market share of US pork production of just over 30% does not give them control. From what we can observe Premium Standard (PSF) never bought a significant number of hogs from mid-west producers as PSF is integrated. There is no loss of a hog market outlet when it never existed.

In North Carolina, PSF’s plant purchased hogs outside their system. With declining finishing hog numbers in North Carolina as more pigs are being sent to lower cost and higher hog priced Midwest Springfield will still need these hogs. We expect, like Canada, North Carolina will send an increasing number of small pigs to the Midwest closer to feed and numerous packing plants. Small pigs will always move to the place of higher profit opportunity.

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 26th September 2006 - Reproduced courtesy Farms.com

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