July 9, 2007

 

US feeder pig prices decline amid corn uncertainty, Q4 outlook

 

 

Feeder pig prices for negotiated sales have declined in recent weeks and could remain weak overall but variable for the near-term, say market analysts and livestock brokers.

 

Uncertainty about corn prices and weak Chicago Mercantile Exchange October and December lean hog futures prices that suggest a cautious outlook for the fourth quarter are weighing on the negotiated, or spot, feeder pig markets.

 

The US Department of Agriculture's (USDA) weekly national pig summary reports for June showed prices for negotiated sales averaged about US$24.50 per head, which was US$9.25, or 27 percent, below the same period a year ago. The latest month's figures also were down US$25.75, or 51 percent, from the January 2007 average of US$50.25.

 

Segregated early weaned, or SEW, feeder pigs weighing about 10 pounds now will reach slaughter weight by late November or December.

 

Hog feeders, or finishers, that purchase most or all of the pigs needed to fill their barns faced wide fluctuations in corn prices so far this year and particularly so over the past 60 days.

 

In its week-ended June 22 feeder pig summary report for the eastern corn belt, the USDA showed negotiated prices for SEW pigs at just US$19.57 per head, a decline of more than US$6 from two weeks earlier.

 

In the US, corn makes up the majority of the feed ration for hogs, with soybean meal and mineral supplements making up the balance. Some swine operations are now using by-products from ethanol production called dried distillers grains as a substitute for a portion of the corn in the rations.

 

From early May to mid-June, 2007 corn futures prices at the Chicago Board of Trade (CBOT) rallied by around 70 to 75 cents per bushel and reached peaks at US$4.26 in the July contract and US$4.31 in the December contract on June 18. A lack of rain across much of the eastern Corn Belt helped fuel that surge.

 

Market analysts and feeder pig brokers said the sharp up move in corn prices caused a great deal of uncertainty among hog feeders, which contributed to a decline in the spot feeder pig markets.

 

A veteran livestock dealer in the eastern Corn Belt said the early season dryness there also led to concerns of corn availability for this fall and winter, which also put downward pressure on feeder pig prices. "No one wanted the extra pigs that were available at the time--the pigs eventually were sold but at very low prices," he said.

 

However, the arrival of timely rains in the region along with a bigger-than-expected boost in corn acreage reported by the USDA on June 29 helped pressure corn futures prices. Values fell more than US$1 per bushel in the July contract and 93 cents lower in the December contract from the mid-June peak by the close of business Tuesday afternoon. Both months posted modest gains Thursday and advanced further Friday.

 

While high feed costs are a major concern for feeder pig producers as well as hog finishers, increased supplies of pigs through improved disease control also are weighing on prices.

 

Steve Meyer, owner-analyst at Paragon Economics and consultant to the National Pork Board, said vaccines for porcine circovirus associated disease are now more readily available and are curtailing death losses from the disease. Meyer said during a conference call June 29 that sharp reductions in death losses will lead to more hogs available for slaughter during the fourth quarter of this year.

 

A veteran livestock dealer in the western corn belt also said because more pigs are surviving due to the widespread use of vaccines, demand for feeder pigs overall is declining and some pig producers are having problems finding buyers. Also, at times there hasn't been enough finishing space available to absorb the volume of pigs offered for sale, so prices declined even further.

 

Seasonal weakness in slaughter hog prices during the fourth quarter and concerns that even more hogs may be available then than the latest USDA hog and pig data indicated have caused buyers of feeder pigs to remain cautious.

 

Glenn Grimes, agricultural economist at the University of Missouri, said some hog feeders who grow most or all of the corn needed by their hog operations may have decided to leave their feeding floors empty and sell the corn instead when prices ran up to more than US$4 per bushel. These are mainly producers who have older facilities, and they buy pigs for finishing when market conditions indicate they will be able to make some money, he said.

 

When enough of these smaller operations elect to skip a cycle and sell their corn instead of feeding it to livestock, demand for the open market pig declines, further pressuring prices.