A major feature of agricultural prices is seasonality — defined as a price pattern correlated with seasons or calendar months. That makes perfect sense due to the biological nature of agricultural production and makes even more sense for crops that are completely dependent on the ebbs and flows of temperature and rainfall.

Seasonal patterns in livestock production are important, too. They are generally tied to reproductive performance of cattle and hogs but are influenced by other factors as well. Cattle producers generally prefer to calve cows in the spring to protect calves from harsh winter conditions. The U.S. pork industry once saw a disproportionate number of sows farrow (give birth) in the March-May quarter for the same reason. That seasonal pattern (high March-May farrowings, low Dec-Feb farrowings) has lessened dramatically as climate controlled facilities now account for a higher proportion of U.S. pork production.

Seasonal demand factors also drive seasonal livestock price patterns by influencing cutout values. Strong summer belly prices are a factor in higher hog prices in summer months though this impact has waned over the years as bacon is used on a more year-round basis in foodservice. Seasonal demand plays a huge role in turkey prices due to traditional usage at Thanksgiving and, to a lesser degree, Christmas.

The graph (please see below) shows ten-year seasonal price indexes for Iowa- Southern Minnesota hog prices. It is nearly the perfect inverse of the seasonal patter for both hog slaughter and pork production. No surprise there. But these patterns have persisted even though seasonal farrowing patterns have leveled dramatically. The reasons are biological. Sows breed better and conceive larger litters (it’s not all to their credit, though, as part of this improvement is due to better boar performance) when temperatures are cool. That means they farrow more and bigger litters in the spring and summer months and hog supplies are larger in the fall and winter months. In addition, market hogs eat less and grow slower in hot weather. This pushes some pigs out of slaughter supplies in the summer and into the fall. Conversely, they eat more and grow better when temperatures cool and fresh corn becomes available (it’s simply more palatable than the corn stored for a year) which causes pigs to grow faster as fall comes on, putting even more — and bigger — pigs into the Q4 hog supply. No amount of technology and ingenuity has been able to completely overcome this pattern and we doubt that it ever will.

SEASONAL PRICE INDEX
-- SLAUGHTER HOGS

Iowa - Southern Minnesota, 1998-2007

Cattle and beef seasonality will be addressed in a future edition.

Of course, repeating patterns of prices spell opportunities for traders comfortable with risk. CME Group’s Moore Research Reports document hundreds of these patterns and are available free with the click of a mouse. Just go to www.cmegroup.com/moore to download your free copy of separate reports for live cattle/feeder cattle and hogs/bellies.

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