March 23, 2009

Hog price gains in early March were encouraging for US hog producers but that promising start to the month has turned sour during the past two weeks.

 

In the first six business days of the month, the USDA's national weighted average price quotes gained US$7.69 per hundredweight, or 14.4 percent, and hit a five-month high at US$61.00 on March 9. Since that day through midday Friday, though, the national average quote has given back US$7.45.

 

Cash hog prices have been below the cost of production for several months, and some swine operations have lost a great deal of money in the past 12 months since grain prices and feed costs raced up to record highs last summer.

 

After hog producers had struggled through the first two months of 2009 with losses estimated from US$25 to US$30 per head, their hopes were raised by the sharp price rally in the first few days of March, analysts and commodity brokers said.

 

Now, with hog prices only slightly above the end-of-February quote, producers are hoping the arrival of spring will spark an improvement in consumer demand for pork domestically and abroad.

 

There were hints of possible stabilisation in hog prices at week's end with some firmer quotes at midday in the western corn belt. Predictions of smaller hog supplies into the second quarter along with seasonal improvement in demand for grilling cuts such as pork chops, butt steaks and spare-ribs are raising expectations for higher hog prices in the weeks ahead.

 

The anticipated market rally may be too little and too late for some producers. Livestock dealers and market managers said some of the smaller hog operations have already sold their sows and will be out of business as soon as the remaining pigs reach slaughter weight and are shipped to the processing plants.

 

There have also been anecdotal reports that a few mid-size to larger producers with several hundred to a few thousand sows have lost financing and will be forced to sell out or liquidate their herds.

 

For the hog operations that are able to hang on, the second quarter looks more promising with prices expected to move above the break-even cost by May. Market analysts and agricultural economists predicted hog prices on a dressed or carcass basis to reach from US$70 to US$80 in May and June. Current projections for break-even prices for the second quarter are around US$71 to US$72. June lean hog futures Friday closed at 73.77 cents a pound, down 117 points on the day.

 

Last week's cattle slaughter was estimated at 615,000 head, compared with 623,000 a week ago and 644,000 a year ago.

 

The week's hog slaughter estimate was 2.155 million head, compared with 2.146 million a week ago and 2.303 million a year ago.

 

The USDA estimated total beef, pork and lamb production for the week at 931.9 million pounds. Last week's output was 935.1 million pounds, and the year-ago figure was 971.1 million pounds.

 

Broiler/fryer slaughter for the week was estimated at 154.982 million head, compared with 153.780 million a week ago and 160.412 million a year ago.