CME: Why Don't Sow Slaughter Rates Increase?

US - CME's Daily Livestock Report for 24th June, 2008.
calendar icon 25 June 2008
clock icon 4 minute read

Despite many pronouncements about the impending disaster in the US hog market, sow slaughter rates in recent weeks have actually slowed down and we have yet to see a complete collapse of sow prices. Which brings about a question that we hear quite frequently these days? If producers are losing their shirts, and if corn prices are expected to remain high, and potentially be even higher in 2009, why are producers not cutting back. Maybe a similar question, or plea, was made to the captain of that fateful ship with the iceberg in the distance. The point is that it will take time to turn this ship around. Why have sow slaughter rates not increased dramatically with corn prices moving to ever higher levels? As Steve Meyer has pointed out in the past, this is partly due to limited capacity for slaughter sows as breeding animals generally are processed in facilities that mostly slaughter such animals. While there may be increased interest from producers to liquidate their sows, plants can only produce enough product to fill orders. And the customers buying slaughter sow pork, which is quite different than the pork chops in your local supermarket, mostly use it in branded sausage products. Thus, the decision to bring more sows to slaughter is not simply the province of the producers that own the animals but also depends on numerous other decisions taken independently in the marketplace. A few weeks back there was an announcement that USDA would purchase about $50 million worth of pork products, especially products made from sow meats, in an effort to support demand. So far there has not been any significant impact in terms of sow slaughter but we may have to wait a bit longer.

E-Livestock Volume 24-Jun 23-Jun 17-Jun
LE (E-Live Cattle): 7,757 7,367 6,975
GF (E-Feeder Cattle): 487 464 424
HE (E-Lean Hogs): 14,373 13,000 15,950

Other factors also may be delaying a more rapid reduction in breeding herd numbers. The industry has made significant productivity gains in the last two decades. This productivity has been achieved through increased consolidation, specialization and vertical integration. Increased consolidation means that larger firms need to weigh the impact of shrinking their market size vs. that of competitors. Specialization is important because farrow to finish operations now account for a less than 20% of all hog production. The economics of liquidation is quite different for a breeding operation facing the possibility of shutting down. Rather, many such operations likely have embarked on a slow go process, hoping to live to fight another day. And the premium of deferred futures provides hope that things will turn around in a not too distant future (~$100 hogs for Jun 2009). Finally, the popularity of using contracts means that producers have to fulfill their side of the bargain. More sows will be liquidated in the next few months but the pace of that liquidation, and thus production declines, may take a little longer.

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