December 15, 2008
Lower numbers of hogs to slaughter supported hog markets last week and kept prices relatively steady while cattle prices faded on fear that prices would decline.
University of Missouri agricultural economist Ron Plain said hog slaughter rates for December are below a year ago. And the weight of these hogs also is down, which means less pork produced from each animal.
If demand doesn't move much, that combination tends to produce a stronger pricing structure for hogs, market economists say. And Plain said this is what happened this week with market hogs. Prices held steady in spite of generally weaker product values because of tightening supplies.
In many respects, the price action of slaughter hogs this week is an anomaly, Plain said. Cattle markets, for instance, followed the Dow Jones Industrial Average, as did other commodity markets and tended to have a much more volatile week in prices.
Fed cattle sales in the Plains states were not yet complete for the week, but live-basis sales were reported in western Nebraska at US$82 to US$83 per hundredweight and in parts of Kansas at US$84.
Those bids are no longer available in their respective trading regions, and cattle owners are resisting lower prices, since even at US$84, the un-hedged feeders in the group would lose US$260 a head, brokers and market analysts said.
David Hales, market analyst at Hales Cattle Letter, said the positive basis narrowed last week with higher futures prices, so selling at prices well below last week was unnecessary from the market's point of view. He chalked up the selling interest to fear that prices could crumble even more.
Overall psychology within commodity markets is bearish, Plain said. Traders keep hoping for more bullish economic news, but even when it comes, they have a hard time convincing themselves that they should trade on the information, he said.
But if hog traders can talk themselves into it, inventory statistics are pointing to market support down the road. Plain said farrowings and farrowing intentions are very light this quarter, suggesting lower slaughter supplies into the spring of 2009.
Historically, beef has a tougher time dealing with recessions than pork, Plain said. The higher-priced cuts are harder for consumers to swallow.
But even so, beef supplies are not at historically high levels, Plain said. He credited beef's tough time sustaining a rally to "a demand problem, not a supply problem."
Last week's cattle slaughter was estimated at 607,000 head, compared with 621,000 a week ago and 651,000 a year ago. Year-to-date cattle slaughter is down 0.2 percent from a year ago.
The week's hog slaughter estimate was 2.335 million head, compared with 2.373 million a week ago and 2.363 million a year ago. Year-to-date slaughter is up 6.4 percent.
The USDA estimated total beef, pork and lamb production for the week at 954.2 million pounds. The previous week's output was 971.0 million pounds, and the year-ago figure was 996.9 million pounds. Year-to-date combined meat output is up 2.7 percent.
Broiler/fryer slaughter last week was estimated at 160.358 million head, compared with 116.875 million a week ago and 169.272 million a year ago.