US hog prices may tumble

 

 

Hog prices may be poised for a fall, but not yet, with the Chicago market set to come back within sight of record highs before correction sets in next year.

 

The rally in hog prices, which hit a high of 90.175 cents a pound last month, will sow the seeds for its own correction by encouraging breeders to reverse the production squeeze in part responsible for the market's recovery.

 

Livestock producers, enjoying their strongest profitability for five years, "will want to take advantage of the present situation", Societe Generale said. However, the return to a "clear upward trend" in output, after a fall in the breeding stock to its lowest since records began in 1963, will take some time.

 

With hogs taking six months to become sexually mature, gestation lasting nearly four months, and it requiring a further six months to fatten the resulting piglets for slaughter, the production rebound will be a gradual process, Societe Generale said.

 

"The actual production of pork meat may not start to increase significantly before mid-2011," the bank said.

 

Meanwhile, demand is being boosted by economic recovery and a revival in exports, notably to China, which US agriculture officials believe will raise imports from America by 10% this year to 220,000 tonnes.

 

"Given the prospect of a continuing decline in production in the short term combined with strengthening demand, we believe that the trend of high lean hog prices is not over yet," Societe Generale said, forecasting that prices would rebound to US$0.88 per pound in the July-to-September quarter.

 

The bank added that prices may start to ease slightly in the last quarter of 2010, when the shift in the production trend is confirmed. However, it does not expect any significant price decline before the second quarter of 2011."

 

Meanwhile, the dynamics are similar for cattle, which neared a record high in Chicago in April, although a strong pace of beef cow slaughter indicating that farmers were still reducing herds.

 

Societe Generale said there is little chance of US beef production increasing by the end of 2010, adding that cattle output should remain constrained in 2011 too.

 

However, forecasts of a continuing decline in US beef consumption, of 2.4% this year, following the recession would limit the impact of tight supplies. The bank expects live cattle prices to range between US$0.90 and US$1.00 a pound until the end of 2011.