Market Preview : Why Heavyweight Hogs, Now?

by 5m Editor
19 April 2008, at 10:30am

US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.

Big question of the day: Why are pork producers selling such heavy hogs when feed costs so much and profits are so awful? See Figure 1 for the evidence of continued high weights.

Figure 1


Answer: There are lots of reasons.

First, waiting to sell pigs will almost always get you a higher price at this time of year. National negotiated net prices have gained $7.50/cwt. carcass, since April 1, so the strategy seems to be working.

Second, producers generally consider feed to be about the only component of marginal cost, the amount added to total costs by the last pound of gain. Only recently have feed costs gotten so high and hog prices so low that marginal revenue (i.e. the price/lb.) has not exceeded marginal cost. So, the incentive to feed pigs longer has been strong. Even if pigs are shipped a bit earlier, someone still has to tend to the barn and the barn may have to be heated. In fact, that latter factor has worked against earlier marketing, especially during the cold winter we just had.

Third, the circovirus vaccines, which are largely responsible for the huge slaughter runs since last fall, are also responsible for pigs growing faster than most people believed possible. In a time-denominated business, faster growth rate means higher end weights, even if you are trying to get them moved.

Finally, there just isn’t room in our slaughter facilities to speed up the slaughter rates to pull marketings forward and pull weights down. Daily slaughter rates have been consistently above 430,000 head. To pull weights down 2 lb. or so, one of those days has to disappear. But about all we could possibly do is add 10,000 head on weekdays and 50,000 or so on Saturday. That’s 100,000 head per week, meaning that it would take four weeks to get that 2-lb. reduction.

Figure 2


Weights will come down. They always do as spring progresses. But I believe we will be hard-pressed to push weights below year-ago levels given large supplies and fast-growing pigs.

Will Anyone Take Weaned Pigs?

There have been some reports of plans to euthanize pigs in Canada due to high feed costs and the fear that mandatory country-of-origin labeling (COOL) will mean there will be no market for them next fall. I have also had reports that this idea is sensationalism. I really hope it is.

Pig prices have plummeted in recent weeks (see Figure 2), indicating plenty of supply and, given feed costs and expectations for cash hog prices this fall, not much demand.

Figure 3


Returning to my soap box now, I encourage feeders to look at the futures market for pricing opportunities. Figure 3 shows the forecasts for quarterly cash hog prices from me and three other market analysts. They are pretty dismal given projected cost levels. It also shows Lean Hogs futures prices as of Thursday. Even allowing for a $3-$4/cwt. basis, Q4 Lean Hogs futures imply that these weaned pigs can be priced at about $140/head.

Will that provide a profit? Probably, as long as there is, in fact, a cash market for the pigs this fall. Let’s hope we can get the COOL issues clearly and quickly established. No one will benefit from the alternative.



5m Editor