US feeder pig prices up from '08; supply down but demand limited

The US feeder pig market faces a dilemma amid reduced supplies and slack demand.

 

Since there are fewer animals available, US feeder pig prices for negotiated sales in the latest week saw gains of nearly 30 percent from a year ago, but there are also fewer buyers for the pigs. Cheaper feed costs, meanwhile, are providing support for the market, but the outlook for slaughter hog prices this summer and early fall isn't as bright.

 

"Finishers are in a quandary because they have space that is not being utilized, but either they are reluctant to pay more for replacement pigs or their lenders won't loan them the money," said a veteran livestock dealer in the western corn belt.

 

The US Department of Agriculture reported prices for negotiated sales last week of segregated early-weaned pigs weighing about 10 pounds from US$33 to US$44 per head. The weighted average price was US$37.51. At this time last year, the same size pigs were quoted from US$15 to US$38.50 with a weighted average at US$29.12. Prices declined throughout the month of March last year as corn and soymeal prices were moving up toward record highs that were hit in June.

 

Many producers suffered large financial losses during the fall and winter because feed costs were still high while hog and pork prices declined sharply on the financial crisis.

 

Smithfield Foods Inc. (SFD), the nation's largest hog producer and pork processor, lost money in its hog-production sector during its latest quarter and tied those losses to record high feed costs. Larry Pope, president and chief executive of Smithfield, said Thursday that he expects the current quarter to be another difficult period with "continued substantial losses in hog production."

 

Dennis Smith, analyst with Archer Financial Services, said few hog finishers seem interested in buying feeders at current prices, given the losses they have sustained over the last 12 to 15 months. He said customers are telling him that some finishing barns in western Illinois and Iowa are empty.

 

Corn prices have declined significantly from where they were a year ago. Nearby Chicago Board of Trade corn futures at this time last year were trading around US$5.60 to US$5.70 a bushel, about US$2 more than current quotes. Corn prices continued to climb during the second quarter a year ago, and some contracts briefly topped US$8 a bushel. Soymeal prices are also down from a year ago.

 

"Yet historically," Smith said, "corn prices are still fairly expensive."

 

A feeder pig broker in the western Corn Belt said pig supplies are tighter, and he estimates that there is empty space available in that region for as many as 500,000 pigs.

 

"There are empty spaces showing up every day, and some of the facilities are only three to four years old," he said.

 

One problem is sharp cutbacks in production in Canada, which in recent years has been a large supplier of feeder pigs as well as slaughter hogs to the US.

 

Last year, about 9.5 million head were imported from Canada. The numbers tailed off rapidly during the second half of the year after the Canadian government last spring initiated a sow buyout program aimed at reducing the swine breeding herd by 10 percent.

 

So far in 2009, live swine imports from Canada are down about 47 percent from a year ago, according to a compilation of weekly import data provided by the USDA.

 

Implementation of the US' mandatory country-of-origin labelling law has also contributed to uncertainty for demand and prices of feeder pigs from Canada.

 

Some livestock market participants predict that feeder pig prices may have already reached a high for the year. This is especially the case for the 10 pounders that if placed into growing/finishing units now would not reach slaughter weight until August or September. Slaughter hog prices are expected to reach a peak for the year sometime from June to early August then begin a seasonal decline.

 

Analysts and livestock dealers said a spark in demand for feeder pigs could occur if corn prices decline significantly in the near term or if deferred hog futures turn sharply higher. If pig prices do move up, the advances could be limited and may not hold for more than a couple of months.

 

Since pigs require five to six months on feed to reach slaughter weight, those being placed into the finishing barns in June will be priced based on expectations for what the hogs will bring when sold to packers in November or December. Fourth-quarter hog prices are generally the lowest of the year because supplies are high, they said.