October 20, 2006

Hog prices fall to 12-week low as US pork production rises

Hog futures fell to a 12-week low in Chicago on signs that rising US pork production may be overwhelming demand.

Meatpackers including Smithfield Foods slaughtered 3.2 percent more hogs in the first three days this week than last week, when the six-day total was 2.166 million head, the most since December. Hog prices fell 3.2 percent this month as wholesale pork dropped to the lowest since April 25.

Explaining the increase in slaughter percentage, an analyst in Kansas said those were huge slaughters relative to demand. He said the largest kills usually came the week after Thanksgiving holiday on Nov 23.

Hog futures for December delivery fell 0.45 cent, or 0.8 percent, to 58.775 cents a pound on the Chicago Mercantile Exchange, after earlier falling to 58.425 cents, the lowest for a most-active contract since July 27. The December futures declined 10 percent since reaching a contract high of 65.6 cents on Sept 5.

A futures contract is an agreement to buy or sell a commodity at a specified price and date.

According to the USDA, about 1.261 million head were slaughtered in the first three days of the week. The August pork production rose 1 percent to 1.774 billion pounds from a year earlier, and output rose 1.7 percent for the year.

Prices for wholesale pork fell 16 percent since reaching a seven-week high on Aug 29 as supermarkets turned to cheaper cuts of beef and lower-priced chicken. The value of a 200-pound hog carcass fell 3.4 percent, the biggest drop since May 2005, to 65.28 cents a pound.

Hog slaughter was 1 percent higher from June to August than the USDA forecast in June and has been running more than 1 percent higher that the USDA forecast last month since Sept 1, reported Ron Plain, an economist at the University of Missouri in Columbia.