Hog Outlook: Hog Producers Receive Welcome Surprise

US - Hog producers received a welcome surprise with the mid-week release of this month's USDA Crop Production report. It projected corn yields near 169 bushels/acre for this year's crop, about 4 bushels above market expectations, write Ron Plain and Scott Brown, University of Missouri.
calendar icon 17 August 2015
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This sent corn futures sharply lower on Wednesday, and led to a reduction in the USDA projected corn price of 10 cents/bushel for the 2015/16 marketing year. The mid-point of that projection is now $3.65/bushel. If that projection is realized, it would lead to the lowest season-average corn price since 2009 and second-lowest since 2006.

The July estimate of farrow-finish profitability posted by Iowa State University this week noted a third consecutive month of profits above $20/animal. This follows much weaker readings for the first four months of the year. With input costs currently expected to remain manageable for the remainder of the year, the extent to which consumer demand for pork can continue to absorb much larger supplies will determine hog prices and profits for the remainder of 2015.

Little change was made to pork market projections for this year and 2016 in the monthly WASDE report released this week. The amount of red meat and poultry available on the domestic market this year is expected to be 8.6 pounds per person (4.3%) higher than last year, with a further 2 pound increase expected in 2016. With consumers needing to absorb this amount of quantity increase, developments in the U.S. and global economy continue to be important, and this week's devaluation of China's currency may be an indicator that more risk needs to be factored in to next year's demand strength and price projections.

Cash hog prices advanced for the week. Thursday's average negotiated carcass price for plant delivered hogs was $75.71/cwt, up $1.48 from last week. The national average negotiated carcass price for direct delivered hogs on the morning report today was $74.84/cwt, $1.53 higher than a week ago, but still $27.92 lower than a year ago. The western corn belt price gained $8.51/cwt. to $77.12/cwt. Iowa-Minnesota hogs sold at $77.19/cwt. this morning, and there was no quote for the eastern corn belt. Peoria had a top price today of $48/cwt, while interior Missouri live hogs had a top of $52.75/cwt.

The pork cutout value lost 53 cents this week, with this morning's cutout at $89.88/cwt FOB the plants. Bellies had another positive week (up 3.1%) while hams gained 3.3%. Other parts of the carcass were lower. This morning's national negotiated hog price equaled 83.3% of the cutout value, an increase of 2.2% vs. last week's low level.

Hog slaughter for this week was 2.218 million head, up 10.0% from the same week last year. Year to date slaughter is 7.7% above 2014. The average live slaughter weight of barrows and gilts in Iowa-Minnesota last week was 276.2 pounds, unchanged from the week before and 7.6 pounds below a year ago.

The October lean hog contract ended the week at $65.57/cwt, up $1.45/cwt from the previous Friday. December closed at $62.05, and February hogs finished at $66.62/cwt.

September corn closed today at $3.64/bu, down 8.5 cents from last Friday. December closed at $3.76.

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