Hog Outlook: Producers do not use futures

US Weekly Hog Outlook, 8th September 2007 - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.
calendar icon 10 September 2007
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A relatively high percentage of hog producers use the hog futures market based on a study just completed by the University of Missouri and Iowa State University with financial support from the National Pork Board, Pig Improvement Company and Pork Magazine.

Use of Hog Futures by Hog Firms (percent of firms responding in size category)
Firm Size
(thousand head mktd.)
1-3 3-5 5-10 10-50 50-500 500+
Use contract tied to futures 7% 13% 12% 17% 2% 11%
Use futures at times 41 51 61 65 91 84
Never use 52 36 27 18 9 5

There are a number of reasons why producers do not use futures or options. Based on the study mentioned above, the following reasons were given by hog producers for not using futures market.

Why Hog Producers Do Not Use Futures or Options (percent of firms responding in size category)
Firm Size
(thousand head mktd.)
1-3 3-5 5-10 10-50 50-500 500+
Bad results in the past 26% 36% 36% 32% 2% 5%
Option premium too high 30 32 42 41 4
Don't like margin calls 28 28 31 27
Too complicated 34 28 19 20 3

The demand for all meats but broilers was up for January-July of 2007 compared to a year earlier. Consumer pork demand for this period was up 1.7 percent, beef was up 0.8 percent, turkey was up 2.2 percent but broiler demand was down 1.1 percent compared to the same months of 2006. However, broiler demand has improved substantially in recent months.

Live hog demand and live fed cattle demand for January-July shows good growth with hog demand up 3.3 percent and live fed cattle demand up 3.9 percent from a year earlier.

Live slaughter barrow and gilt weights last week in Iowa-Minnesota at 263 pounds were up 1.7 percent from a week earlier and up 1.4 percent from the same week last year. With cooler weather over the next few weeks, it is likely weights will continue to get higher. The highest live slaughter weight for barrows and gilts last fall and early winter was 271 pounds per head, but a year earlier we had one week with weights at 273.8 pounds. We probably will get close to the 273.8 pounds this year but might not equal or exceed it.

Pork cutout this week per cwt of carcass at $67.72 per cwt was down $0.64 per cwt from a week earlier. Loins were up $1.71 per cwt from seven days earlier at $83.84 per cwt, Boston butts at $61.92 per cwt were down $0.87 per cwt, hams were down $3.13 per cwt at $56.99 per cwt and bellies were down $3.36 per cwt at $83.54 per cwt.

Live hog prices Friday morning were $2-3 per cwt lower compared to a week earlier. Weighted average carcass prices under negotiated trade were down $1.95-3.04 per cwt lower compared to seven days earlier.

The live prices Friday morning for select markets were: Peoria $39, St. Paul $41 per cwt and interior Missouri $42 per cwt. The weighted average carcass prices by area were: western Cornbelt $59.99 per cwt, eastern Cornbelt $58.44 per cwt, Iowa-Minnesota $60.62 per cwt and nation $58.90 per cwt.

Slaughter this week under Federal Inspection was estimated at 1,939 thousand head up 2.4 percent from a year earlier.

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