CME: Hog Industry Awaits WASDE Report

6 November 2012, at 1:57pm

US - USDA will release its monthly estimates of agricultural supplies and demands on Friday, write Steve Meyer and Len Steiner.

Both the Crop Production and World Supply and Demand Estimates (WASDE) reports will be released at 8:30 a.m. EST. The results of DowJones Newswires’ monthly pre-report survey of analysts regarding key crop production and inventory figures appear at right. Analysts do not expect any major changes from October’s estimated levels. The most notable would be the 0.4 bushel expected increase in the soybean yield.

Analysts expect a similarly slight increase in the soybean crop but a very small increase in 2013 year-end stocks. Note that the average of the predictions for corn yield is the same as USDA’s October figure (122 bu./A) but the crop is expected to decline slightly. These averages do not always match up but this may indicate an expectation of lower harvested acres. The pork industry was shocked yesterday by news that Bob Christiansen, founder and president of Christiansen Farms of New Ulm, MN died Saturday of an apparent heart attack while hunting in Missouri. Christiansen Farms was listed as the fifth largest individual pork operation in Successful Farming’s 2011 Pork Powerhouses rankings with 162,500 sows. It was included in the Triumph Group in those rankings by virtue of being one of the owners of the Triumph Foods plant in St. Joseph, MO. Christiansen was one of the driving forces in the formation and success of that cooperative packing venture. He was a leader in industry efforts to connect with consumers and rural residents and was a major contributor to animal education centers at the Minnesota and Iowa State Fairs. Those centers included live births of pigs, calves, lambs and other farm animals and the stories of how they provide meat, milk and eggs. Bob was only 51. We send our condolences to his family, friends and co-workers.

Following up on yesterday’s discussion of sow slaughter rates — The unexpectedly low levels of sow slaughter during September and the first half of October have given way to even lower sow slaughter levels the past two weeks. That is not what is supposed to happen when producers lost an estimated $52/head in September and are expected to lose an estimated $31 per head for each hog sold in the fourth quarter. Theory and past episodes suggest that producers will liquidate sow herds in an effort to reduce losses in the future. But it is no happening. Purchase data the past two weeks (see the chart at right) imply FI sow slaughter levels of only 60,730 and 60,930 head. Those numbers would be 3.6% and 7.8% BELOW the levels of one year ago. Not a very effective way of reducing supplies, is it? So what is wrong with this picture? There are at least three issues. First, it doesn’t appear that “the industry“ is losing anywhere near the estimated amounts on each animal. The modeled average Iowa farrow-to-finish producer would be losing these huge amounts only if that producer behaved as the model does and buys all corn and soybeans as they are needed and sells all hogs on the negotiated spot market. There are producers who are still doing that but they do not represent anywhere near the majority of the industry. Producers are MUCH MORE ACTIVE IN MANAGING INPUT COSTS AND SELLING PRICES — IE. MARGINS — THAN BEFORE and are not, in general, suffering losses near this large.

Second, many producers representing a higher percentage of output have been doing this for awhile. That means their financial position is much better than most have estimated. The professionallymanaged, technologically-savvy producers — and not just the LARGE ones — that account for the vast majority of U.S. hog production have financial resources sufficient to last until positive margins return. Finally, this is a short crop episode and hog producers know it. Normal weather next year will result in 2014 carryouts that could put corn near $4/bu. and bean meal back below $350/ton. Those are not low prices versus history but they would put average carcass weight costs in the mid-$70s/cwt. at a time when beef supplies will be tight. “Holding on“ is both possible and quite rational, it seems.

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