October 7, 2004

US Feeder Pig Prices On The Rise

Since bottoming in late August, the US feeder pig trade has been on a gallop, appreciating early 20% or nearly $8 per head in less than six weeks.

Last week, USDA estimated the per head composite value of 40 to 50 pounders at $48.48, up 33% compared with the same week in 2003.

The pig market has heated up (and continues to get hotter) just as the hog market seems to be tiring a bit.

Pig buyers have apparently been undeterred by the negative September 1 Hogs and Pigs Report and the moderate selling pressure it has caused upon deferred lean futures.

The ongoing rally in feeder pig prices could possibly be explained by the dominant seasonal trend. Price historians have no problem identifying a predictable period of pig appreciation that typically stretches from late August through mid December.

Another supporting factor no doubt involves prospects for a record feed grain harvest and sub-$2 corn. Moreover, excellent feeding profits over the last year are naturally funding higher levels of reinvestment.

Finally, there is the simple fact that deferred lean futures (e.g., Feb) still offers some attractive investment and hedging opportunities. For example, a $48 feeder pig thrown against late February should have a breakeven around $46-47 on a live basis. Currently, the board implies a late winter live market close to $49.