CME: Crash Priced Pigs Looking A Bargain

US - CME's Daily Livestock Report for 5th August 2008.
calendar icon 6 August 2008
clock icon 4 minute read
E-Livestock Volume 8/5/08 8/4/08 7/30/08
LE (E-Live Cattle): 14,527 13,282 10,180
GF (E-Feeder Cattle): 1,169 1,051 744
HE (E-Lean Hogs): 17,413 11,549 9,185

The chart below demonstrates what happens when the demand for a truly “un-storable” commodity softens.

Weaned pigs fit the “un-storable” tag to a tee. These pigs are 17-23 days old when they are removed from their mothers. They are surprisingly tough (we know of a load of 1000 pigs that got stuck for 24 hours in a snowstorm a few years back and they lost only 3 pigs!) but they do require specialized trailers, nutrient-dense feeds and a carefully-controlled environment in the receiving building. Further, the farrowing stall that they and their mother occupy for those 17-23 days is needed immediately for the next group of pregnant sows. So they cannot be kept at the farrowing farm and they can’t be placed just anywhere, especially in cold weather.

Twice this year the demand for these pigs has crashed. The first instance was in late March when high feed prices and falling live hog prices drove derived pig values to near zero. It happened again in late June and early July when feed prices spiked to all-time highs and it appeared that the seasonal high for hogs was in and that fall cash hog prices would be significantly lower. That decline took weaned pig prices to all-time lows and some pigs were actually given away. The feed price declines of recent weeks are making those look like terrific deals.

Lower feed prices have driven the rally of the past three weeks but $15 is still far below estimated production costs of $35-$40 per head.

Conservation Reserve Program

Last week’s decision by USDA to not release CRP (Conservation Reserve Program) acres without penalty has made the entire issue of CRP acres a hot topic. Even without a penalty-free release, some CRP acres are due to come out of the program each year and the entire market is trying to get a better understanding of how many acres are involved and exactly when they may become available. USDA provides some guidance in this respect but, as it became quite obvious to us this week, one should pay close attention to the nuances of the issue. In the July 30 issue of the DLR, we presented a chart that shows total acres expiring from CRP for the period 2008 – 2015. The data was obtained from a USDA report that can be found by clicking here.

However, this report includes all expiring CRP acres and does not adjust for expiring acres that will be automatically re-enrolled in the program. When adjusting for acres that are scheduled to re-enroll, the number of expiring CRP acres this year and going forward is materially smaller. These adjusted numbers can be found by clicking here.

Below is a new chart that shows the number of expiring acres for each year after adjusting for those acres scheduled to be automatically re-enrolled in the program.

Further Reading

- You can view the full report by clicking here.
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