October 13, 2006

 

Ideas for US hog prices next week mixed but most lean firm
 

 

An informal Dow Jones Newswires survey of swine industry sources and market analysts for their opinions about cash hog prices next week revealed mixed opinions, but there were a few more bullish responses than bearish predictions.

 

Using a scale of 1 to 10, the average of the bullish predictions was at 6.75, and about 60 percent of the participants gave a rating of 6 or higher.

 

The bullish majority cited an increase in daily slaughter capacity, strong demand for hogs throughout the summer, expanded export sales again this year, and ideas that slaughter-ready hog supplies may not be as readily available next week compared with this week as factors that could contribute to at least a mild rebound in prices next week.

 

They said large numbers of hogs that were contracted for delivery this month and tied to October lean hog futures have been moved to the plants this week, which may reduce the number of animals that are available next week.

 

Since October lean hog futures expire on Friday, those contracted shipments will be completed by the end of this week, they said.

 

Packers would not have those big contracted supplies available to them next week, so they may have to be more active buyers in the spot markets to fill their plants which could help underpin prices, the bullish sources said.

 

However, some sources and analysts remain cautious. Expanding seasonal supplies of hogs could keep downward pressure on prices, they said.

 

Bob Brown, private analyst in Edmond, Oklahoma, maintains a database that shows the changes in prices on a weekly basis compared with the previous week. Over the past 20 years, cash hog prices during the third week of October have declined in 18 of those years, or 90 percent of the time.

 

During the past 10 years, 1999 was the only year in which prices in the third week of October were up. In the previous 10 years, from 1986 through 1995, 1986 was the "odd man out," with all other years lower, Brown said. "So, that's zero up and five down out of the last five years, and two up, 18 down out of the last 20 years. I'll go with the odds and say down next week," Brown said.

 

Brown predicts next week's federally inspected hog slaughter could reach 2.2 million head, which would be the largest weekly figure since mid-December 2004.

 

A veteran livestock buyer in the eastern corn belt said even though the large number of contracted loads linked to October lean hog futures will be out of the way by the end of this week, there were probably other producers who wanted to ship hogs this week but were unable to be worked into the delivery schedule until next week. "I think the market will drift down again next week," he said.

 

One of the sources who gave a 7.5 bullish view for next week predicts that the rally could be short-lived and likely will falter the following week. He gave a 2.5, or bearish, rating for prices during the week of Oct 23-27, 2006, on ideas that large supplies of slaughter-ready hogs could overwhelm demand by that time and force prices back down.

 

Regardless of which direction prices move over the next week or two, livestock market sources recommend that producers continue to sell their hogs on a timely basis to keep supplies as current as possible and to prevent the animals from becoming too heavy, which not only results in additional pork produced from these hogs but also could limit producers' marketing options.