June 2, 2008

US hog liquidation slowed by recent price rally

 

 

The pace of hog herd liquidation in the US has slowed in recent weeks following a sharp rally in cash hog prices this spring.

 

Less liquidation of breeding animals would mean a lighter pull back in slaughter hog supplies by this time next year than had been expected earlier.

 

Year-to-date U.S. hog slaughter is up nearly 10 percent from a year ago, and some analysts have said supplies need to be reduced significantly for producers to be profitable in 2009.

 

Larger-than-expected gains in cash prices this spring and other factors such as premiums in deferred lean hog futures that put prices at or above projected breakeven costs are also seen to influence producers' decisions.

 

Record large hog slaughter rates during last year's final quarter and the first quarter of this year combined with low hog prices and skyrocketing feed costs resulted in deep losses for US hog producers.

 

The negative returns and no end in sight of high grain prices led to increased numbers of sows and gilts, or young female hogs, shipped to processing plants instead.

 

USDA data show the five largest sow slaughter weeks of the year occurred from mid-March to mid-April when average sow slaughter was up nearly 15 percent from the same period a year ago.

 

Ron Plain, agricultural economist at the University of Missouri, said sow and gilt slaughter data as of mid-May show that the nation's breeding herd is still declining, but not nearly as fast as it was in March and early April.

 

Strong gains occurred in the cash hog markets during April and the first half of May pushed prices up by about 58 percent from April 1 to May 14.

 

Some producers felt the worst of the market conditions were behind them, and they may have decided to not reduce the breeding herd any further, analysts and livestock dealers said.

 

Plain said the swine breeding herd will likely stop declining this summer as producers react to the premiums that have been built into futures prices. "The slow decline in liquidation we've seen in recent weeks may become no decline in the weeks ahead," he said.

 

The strength in Chicago Mercantile Exchange lean hog futures suggests that traders believe pork exports will remain good forever, Plain said. However, he is concerned that demand for the pork may not be as strong in 2009 as it has been this year while production could remain very large. "The industry needs to reduce the herd more than it has so far," he said. .

 

The USDA's next quarterly hog and pig report, scheduled for June 27 for data as of June 1, may provide additional information on reduction of the breeding herd so far along with indications of producers' intentions for the summer and fall regarding breedings, analysts and livestock dealers said.