October 23, 2006

 

Rising corn, lower hog futures weigh on US feeder pig prices

 

 

US feeder pig prices fell this week, sharply so in some locations, amid surging Chicago Board of Trade corn prices and declining Chicago Mercantile Exchange lean hog futures.

 

The prospect of higher feed costs and lower returns for the pigs when they reach slaughter weight in four to five months are weighing on the prices that buyers are willing to pay for feeder pigs, industry sources said.

 

A livestock dealer in Iowa said most of the larger swine operations that purchase or sell pigs do business via marketing agreements with formulas that typically are based on the lean hog futures price for the month--or nearest to the month--that the pigs will reach slaughter weight. However, some of these formula arrangements may not have any adjustments built in for sharp changes in corn prices.

 

Since corn futures prices have surged above US$3 per bushel in all CBOT trading months and corn makes up the majority of the swine ration, feed costs are moving up as well. Higher feed costs squeeze hog finishing margins.

 

Glenn Grimes, agricultural economist at the University of Missouri, said it takes about 10 bushels of corn to finish, or feed out, a pig to slaughter weight. And, with corn about US$1 per bushel higher now versus a year ago, that means the increase in feed costs from corn alone is about US$10 more per animal, he said.

 

The Iowa livestock dealer said buyers and sellers of feeder pigs who use formula price agreements will likely have to adjust their formulas and possibly share in the higher cost of corn. Neither the buyer nor the seller of pigs will want to stand the increased cost on their own, he said.

 

Some of the feeder pig auction markets were sharply lower on prices this week, industry sources said. Corn prices are one of the major factors but there could be others as well. Feeder pig prices at the auction markets or those that are traded in the spot or negotiated markets can be fairly volatile from week to week depending on the number, quality and size of the pigs being offered for sale. Also, if some of the buyers who feed out the pigs are unable to attend the auction on a given week, there may be considerably less buying interest at certain times than others.

 

The US Department of Agriculture reported prices for early-weaned pigs weighing about 10 pounds at US$1 to US$3 lower this week in its weekly national feeder pig summary released Friday (Oct 20). Demand was light for moderate to heavy offerings, USDA reported.

 

CBOT December corn prices Friday closed at US$3.12 3/4 per bushel, which is up 71 cents from four weeks ago. Meanwhile, February hogs, which is the contract that many of the feeder pigs are based on for current transactions, finished the week at 62.00 cents per pound.