US hog prices continue to stay strong. Iowa – Minnesota last Friday closed at 80.85 cents lean per pound continuing to hover over the 80 cent level. A year ago lean hogs were just over 50 cents lean per pound that is a $60 per head difference year over year. Instead of losing $40 per head a year ago, we are now making $20 per head. Prices are better but we still are not filling the equity hole as fast as it was dug.

Last week’s US marketing’s were 1.917 million down 131,000 head from the same week a year ago. You don’t have to look much farther than lower supply to see the reason hog prices have appreciated so much in the last few months. Pork demand is strong with USDA pork cut – outs hovering around 90 cents lean per pound. Packers are making money which is good for the short term and long term viability of our industry. It appears that pork bellies in storage last week was almost non – existent at 424 compared to a year ago when it was 28,749. The low pork storage supply is a reflection of the strong demand and will in our opinion be a powerful support in maintaining high hog prices in the coming months.

Other Observations

• Cash early wean pigs averaged $41.97 and cash 40 pound feeder pigs $55.78 according to the USDA report.
  
• Broiler chick placements were up 2 per cent last week year over year. The chicken price is 85.09 pound compared to last year’s 79.99. Chicken, like hogs are seeing better returns. They are increasing production. Increased chicken production is more competitive meats for pork. The positive is Russia has recently resumed chicken trade with the USA Increased chicken exports will be positive for US pork prices.
  
• The September US Quarterly Annual Product Production being put together by the USDA says there will be 222.03 (billion pounds) produced in the US in 2010 down 700 million pounds from 2009. The projection for 2011 indicates about a 400 million pork production increase over 2010 with prices very similar to 2010.
  
• The wildcard in the next twelve months will not be supply of pork. We expect prices will stay strong. The wildcard is reports grain prices are and will be higher. Consequently the cost of production for swine is higher (about $12 per head). This is crowding profits for swine producers. In some ways it is shocking with the US corn crop at record levels that corn prices keep going higher and higher. This in itself reflects the connection of world supply and demand. We are in a global market where now it matters as much what crops are in Russia as in your neighboring state.

This week we are attending the biannual Pork Expo 2010 in Curitiba Brazil. This is the largest pork show in Brazil. We will report our observations in next week’s commentary.