October 3, 2009

 

Fewer hogs, better demand may soften Q4 pork declines

 

 

A modest reduction in US hog supplies from a year ago during the fourth quarter along with a possible improvement in export demand may soften the normal autumn decline in wholesale pork prices.

 

Typically, the hog and pork markets are under more pressure now due to larger supplies. The seasonal patterns for hog slaughter and pork supplies show an increase during the fall and early winter months.

 

Swine prefer moderate to cooler temperatures, litters are typically larger, and the animals grow faster under these conditions compared with winter's chill or summer's heat. The additional supplies then exert pressure on prices.

 

Using 10-year price charts to compare weekly price changes in hog and pork cuts, Bob Brown, private analyst in Edmond, Okla., said there's a gradual decline in cash hog prices throughout most of the fourth quarter. The weeks in which prices have fallen 70 percent to 80 percent of the time during that timeframe are from mid October through early November. Similar patterns are seen in the charts for the pork cutout value, loins, butts and bellies.

 

Between early October to mid November, cash hog prices declined an average of about 12 percent, the pork cutout broke about eight percent, while loin and butt prices fell about 10 percent.

 

Brown predicts that hog and pork prices may not see as much seasonal weakness this year as they normally do for two reasons. First, in the latest quarterly hog report, the number of market hogs weighing under 120 pounds taken as a percent of the over 120-pound categories was the smallest ever.

 

"This could give a very small increase in fall slaughter rates relative to the summer slaughter," he said. Second, demand from July through September was poor, so much so, in fact, that if it improves any during the final quarter, prices could be higher than expected. Both of these are potential positive factors, he said.

 

"On the down side," Brown said, "if supply keeps showing up above expectations, we could see new lows in cash hogs." He said there is a chance that the lows hit in cash hogs in August could be the low for the season.

 

Kevin Bost, president of Procurement Strategies Inc. in Chicago, predicts barrow and gilt slaughter during the fourth quarter will be down two percent from a year ago the off four percent during the first quarter of 2010, he said in a research note.

 

Barrows are young castrated male hogs, and gilts are young unbred females, and together they make up about 97 percent of the swine slaughtered, according to US Department of Agriculture data.

 

Bost also said that since hog producers have had hefty financial losses during the past year, there may have been even further cutbacks in production that could be reflected in smaller slaughter supplies. There could be a "flatter-than-normal" production pattern in the weeks ahead. Since wholesale pork prices are already so low, "the pork market is well into the process of buying demand, not only in supermarkets but also in the export market," he said.

 

"A material decline in pork demand from this point forward is doubtful," Bost said. He sees hams, butts, and spareribs as having "the best chance of increasing in value from this point forward." The ham market has "set itself up for a fairly strong holiday push because prices have been relatively low and stable all year, which encourages more aggressive holiday promotions."