March 11, 2005

 

US hog kill, prices seen near year ago but estimates vary

 

 

Market analysts and economists predict second quarter US hog slaughter and cash prices to be near a year ago but the estimates range from slightly above to modestly below last year's figures.

 

Some foresee the April-June period being a pivotal one for the pork sector and for what happens then to set the stage for the balance of the year in terms of pork production and prices, versus their respective year-ago levels.

 

The analysts agree that there are at least three wildcards for the hog market that may come into play during the second quarter. These include the ongoing uncertainty about the reopening of the US border to imports of Canadian cattle, possibilities that the flow of Canadian beef might be halted as well, and uncertainty about whether anti-dumping duties on imports of Canadian hogs will be upheld when the International Trade Commission announces its ruling in April.

 

International and domestic demand for pork also will be a key factor for hog prices in the second quarter.

 

Chuck Levitt, senior livestock analyst with Alaron Trading Corp. in Chicago, said slaughter-hog supplies from domestic production in February and so far in March have been larger than had been projected by the December hogs and pigs report. There was probably a little more growth in the breeding herd and productivity than what was shown in the December report, he added.

 

Levitt predicts that cash hog prices during the second quarter will be slightly below those of a year ago, which averaged $75 to $76 per hundredweight on a 51 percent to 52 percent lean carcass basis. He expects pork production during the quarter to be slightly above a year ago and for that trend to continue throughout the year, resulting in a new record for annual production.

 

Looking ahead into the second half of the year, Levitt said"anticipating higher prices than a year ago is probably not a good idea."

 

Dan Vaught, analyst with A.G. Edwards and Sons in St. Louis, said the early observance of Easter this year could cause fresh ham prices to decline during the second half of March and into early April, setting the stage for hog prices to begin the second quarter on a weak note, compared with years when Easter is observed in April. He said second quarter hog prices could hinge on what prices for the other cuts do, particularly loins. Loin prices at this time in the year have not made as big a move in recent years as have bellies and hams.

 

Vaught said that overall, however,"pork demand has held pretty well," and he remains optimistic for strong cash hog prices in May through June and into July. He projects second quarter cash hog prices to average about $77.50.

 

Vaught expects hog slaughter during the second quarter to be about 1 percent below a year ago. "I cannot argue with USDA's projection of 1 percent fewer hogs," he said. He expects smaller imports from Canada to be a factor as well. In its December quarterly hogs and pigs report, the USDA estimated hogs weighing 60 pounds and under as of Dec. 1 at 99 percent of the year-ago figure.

 

"Folks who have been bullish April (lean hog futures) have been looking for fewer slaughter hogs available at that time due to reduced feeder pig imports in the fourth quarter," Vaught said.

 

According to US Department of Agriculture data, feeder pig imports from Canada through the first 42 weeks of 2004 averaged about 109,000 head per week. After preliminary antidumping duties were imposed in late October, feeder pig imports declined by more than 16,000 per week and averaged just 92,900 during the final 10 weeks of 2004. For the first eight weeks of this year, they have averaged about 98,500 head. Even though pig imports so far in 2005 have rebounded a bit from late 2004, they are down about 17,000 head per week from the same period a year ago.

 

The decline in the number of feeder pigs crossing the border in late 2004 and so far this year reduces the number of hogs that will be available for slaughter now through the second quarter, the analysts said. It generally takes from four to around five months for the pigs to grow to slaughter size.

 

Don Roose, analyst with U.S. Commodities Inc in West Des Moines, Iowa, believes there will be more hogs available in the April-June period. He predicts a 1 percent to 2 percent increase in slaughter-ready supplies for the quarter at a time that there also may be a slowing of demand for pork, depending on several other factors.

 

He said the US pork market could be coming to a crossroads, with producers encouraged to boost output due to strong profitability in 2004, low input costs and favorable tax laws and interest rates. Roose said it appears that the majority of producers banked their profits through most of last year. However, some probably began a slow expansion in farrowings during the fourth quarter, which could begin to show up in larger slaughter-ready supplies during the second quarter

 

Private analyst Bob Brown in Edmond, Okla., foresees second quarter U.S. hog slaughter up 0.3 percent from a year ago and Canadian slaughter for that period up 4.7 percent. That would put North American hog slaughter for the April-June period up 1.1 percent, according to Brown';s forecast. Despite the modest increase in slaughter, he expects hog prices to be up about $1.00 per hundredweight from a year ago as well, with an average for the quarter at $76.00 on a carcass, or dressed, basis, compared with $75.00 in 2004.

 

Brown said there are three main factors driving his price forecast. Packer's slaughtering margins last fall were tighter than normal, which he sees as having added about $6.00 per hundredweight to the price of hogs at that time. Their margins are still tight, which is probably adding about $2 to $3 to hogs prices now, he said.

 

Another issue that Brown considered was reconciliation of trade between Russia and Brazil that could slow exports of US pork trimmings and other low-priced items. There were issues between the two countries last fall that resulted in more US pork sales to Russia. So, US exports of those items might not be quite as strong in the period ahead as they were in late 2004 or the first quarter of 2005.

 

A third factor that Brown mentioned, along with most of the other analysts, was the strong contribution that pork bellies made in second quarter last year to the carcass composite value and the odds that belly prices would not be as high this year. Brown predicts belly prices during the second quarter to be down about 15 percent from a year ago.

 

Levitt said there are more bellies being stored in freezers this year, so prices will probably not be as high this spring and summer as they were a year ago. If hog prices during April-June this year are as strong as they were a year ago, they will have to rely more on the other cuts, he said.