March 2, 2007

 

US hog prices stable despite corn price hikes
 

 

Recent price gains for cash hogs and Chicago Mercantile Exchange (CME) lean hog futures are limiting culls of breeding animals, despite continued strength in the price of corn used to feed the animals.

 

Cash hog prices rallied 20 percent through mid-February from the lows set in early January. The US Department of Agriculture's national weighted average hog price for February 15 was US$65.74, which is about US$49.30 on a live basis. On January 9, the national average was US$54.95, or US$41.20 on a live basis.

 

The rebound in cash hog prices has helped producers recover their higher feed costs and reduced talk of further liquidation of sows.

 

During the fourth quarter of 2006, slaughter data showed a fair number of producers sold more sows when cash hog prices were in a seasonal decline and the outlook for market conditions in 2007 was poor, said Ron Plain, agricultural economist at the University of Missouri.

 

Plain's sow and gilt slaughter data for the first two months of this year show a slowed pace in the number of sows being sent to slaughter, indicating a slight growth in the breeding herd in 2007.

 

However, with more sows being sent to the market in the fourth quarter, Plain projects the March 1 breeding herd to be about even with a year ago.

 

In addition to the gains in cash hog prices, summer and autumn lean hog futures at the CME have posted significant rallies. June hog futures on February 14 hit a contract high of US$78.75, a gain of 11 percent from the January 9 low. October lean hogs also rallied to a contract high of 70.30 cents a pound on February 26 from nearly a two-month low of 61.90 on January 10.

 

Plain said futures and cash prices have both rebounded to provide more optimism among the nation's hog breeders.

 

Dan Vaught, analyst with A.G. Edwards and Sons in St. Louis, said strength in cattle and poultry prices also contribute to a more positive outlook by hog producers. The sharply higher corn prices have led to ideas that meat and poultry prices will have to be higher to compensate for the rise in feed costs, he said.

 

October lean hog futures closed February 27 at 69.65 cents, down 0.50 cent on the day, but it was above the latest CME two-day cash index at 66.37.

 

Vaught also said there are ideas held by some people in the industry that corn prices would not move much higher unless there is a significant weather event such as a drought. Chicago Board of Trade corn prices are at 10-year highs on strong ethanol demand. On Tuesday, March corn prices settled at US$4.11 a bushel, and May closed at US$4.24. 

 

On the packing side, there is still fairly strong competition among the packers for the available hog supplies, Vaught said.

 

A western corn belt livestock market manager said he and his producer customers are looking at hedge opportunities in August through April 2008 hog futures as a way to lock in some profit and maintain cash flows.

 

The outlook for producer profitability this year is brighter now that it was just a few weeks ago, the analysts said. However, there could still be some months in which prices are below the cost of production.