October 11, 2010

Decline in pork prices, grain price hikes threaten hog profits

Seasonally expanded hog supplies, sharp declines in wholesale pork and cash hog prices, and a bullishly construed supply-demand report for grain prices create a triple threat to hog producer profitability.

This week's hog and grain market activity has not been kind to the nation's swine producers. As of the end of business Thursday (Oct 7), cash hog prices as reported by the USDA's national weighted average quote, have declined US$5.17 per hundredweight, or 6.7% from a week earlier. Meanwhile, the pork carcass composite value for the same period fell US$7.94, or 8.9%.

Cash hog prices hit the year's high in early May, with the USDA national weighted average price peaking at US$86.20. On Thursday (Oct 7), the USDA figure was US$72.12, a slide of US$14.08, or 16.3%, worth about US$28 per head less than the summer high.

Larger supplies of slaughter-ready hogs available to processors now are weighing on cash prices at a time when corn prices are surging as a result of lower-than-expected yields and smaller stocks predicted to be left. Corn prices rose sharply in September before sliding back late in the month and into early October. But, bullish data released by the USDA suggest that corn prices could move up to and possibly through the highs hit in September.

Should that happen, break-even costs for hog producers and other livestock or poultry operations would move up significantly. That could reduce or erase the expected profits seen at the time the animals were born, hatched or purchased.

Corn prices, for example, at US$5.25 a bushel versus levels at around US$3.75 in May and June, would boost the cost or raising a hog by about US$15-US$20 per head. That could mean the difference between producers being profitable and considering expanding their herds versus losing money and reducing the number of sows to be bred.

Some analysts and economists have predicted that the December quarterly hogs and pigs report will show smaller farrowing intentions for the December-February period than were seen in the September report, due to the rise in corn prices since early September.

The USDA estimated this week's cattle slaughter at 664,000 head, compared with 656,000 the previous week and 632,000 a year ago. Year-to-date cattle slaughter is up 1.7% from a year ago.

Hog slaughter this week was estimated at 2.253 million, compared with 2.156 million last week and 2.292 million a year ago. Hog slaughter for the year to date is down 4.5%.

The USDA estimated total beef, pork and lamb production for the week at 977.7 million pounds, compared with 948.5 million last week and 972.8 million a year ago. Year-to-date combined meat output is down 2.3% from a year ago.

Broiler/fryer slaughter was estimated this week at 166.161 million head, compared with 167.672 million a week ago and 161.582 million a year ago.