CME: Rapid Rise in Hog Weights a Hot Topic

US - Don’t expect any data from the recently-authorized mandatory wholesale pork price reporting system for about 2 years. That was the word from Livestock Market News Acting Branch Chief Mike Lynch on Monday at USDA’s Annual Data User’s Meeting in Chicago, according to Steve Meyer and Len Steiner.
calendar icon 27 October 2010
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Lynch said the mandated negotiated rule making process would likely take 18 months to complete since it involves more up-front time to select a committee of industry participants to craft the initial proposed rule. Allowing 4 to 6 months for the agency and packers to complete computer system changes and it may well be late 2012 before we see any of these prices and quantities actually published. At least a portion of the weekly pork export reporting depends on the quantity data reported under this system so the 2 year horizon applies there as well. Weekly pork export data representing actual product loadings may be available sooner since those data will not be provided by packers but will be gathered by FAS much as grain export data are now gathered.

We should have said more about this USDA meeting before the fact and would urge readers to look for the announcement of next year’s meeting if you a) use USDA data and b) have any concerns about it. The meeting is held in mid– to late-October, usually in Chicago and, in our opinion, is very worthwhile. USDA announces the specifics during the summer months and a link to information about this year’s meeting was prominent on NASS’s website. USDA has been holding the meetings for several years and, again in our opinions, has been reasonably responsive to the issues raised by data users. Proceedings from past meetings can be found here.

One topic of discussion among the analysts gathered at the Data Users Meeting was the rapid rise in hog weights over the past few weeks. The following chart shows weekly average weights of barrows and gilts for which prices are reported under the mandatory price reporting system. These data come from the HG-201 Prior Day Slaughtered Swine report and represent the average weights of, on average, about 95 per cent of all barrows and gilts slaughtered. The remaining 5 per cent of barrows and gilts are slaughtered in smaller plants that are not required to report to the MPR system.

A couple of things are noteworthy about the chart. First, this year’s increase since the first week of September is not all that unusual in either its magnitude or pace. The 2004- 2008 average increases by 5 pounds during that period where this year has seen weights increase by 6 pounds. The more important question is “What happens now?“ Historically, weights have continued to increase at a slower pace through November when they peak at about 2 pounds more than the average for the third week of October. With feed prices rising, producers will try to reign in these weights but their ability to do so will be limited by packing plants that last week operated very near their weekly capacities.

The second interesting feature is that the real seasonal weight anomaly was LAST YEAR and the anomaly began in September. We and many others noted the counter-seasonal drop in hog weights last December but the lack of a seasonal increase earlier in 2009 indicates that producers were encountering troubles with last year’s corn quality much earlier that we once recognized.

Finally, last week’s increase was the smallest since the week of 4 September. Is it the first sign of a peaking of weights? One point does not a trend change make but this one, along with the historical seasonal pattern, suggests that these weight increases and their contribution to pork supplies may indeed be slowing.

The chart below shows a longer history of average hog slaughter weights. The data in this chart represent all hogs, including “off hogs“ (ie. light barrows and gilts) and sows/boars. The slowing of weight increases in times of high feed costs is apparent in1989, 1996 and since the advent of federal biofuels policies in 2006. If the pattern of recent weeks holds, the estimated weights for the past two weeks will be revised upward by 2-3 pounds when final data are published this and next Thursday. Those revised weights could well be record-high but would still not mark a sharp break in the recent sideways trend in hog weights. Higher feed costs in 2011 will likely limit weight increases for the foreseeable future but Q1-2011 weights could be significantly higher than one year earlier due to the relatively low seasonal increase of Q4-2009 and resulting low Q1-2010 average weights.

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