December 31, 2007

USDA hog report forces upward revisions to 2008 projections

The US Department of Agriculture's quarterly hogs and pigs data released on Thursday (December 27, 2007) afternoon has led some analysts to revise their slaughter supply projections higher for 2008.

The report showed all hogs and pigs as of Dec. 1 at 104.0 percent of a year ago and hogs for marketing at 105 percent. USDA's estimates for most of the categories were above the averages of analysts' estimates.

Slaughter rates during the final quarter of this year have averaged about 7.5 percent above a year ago. Weak cash prices and trade reaction to the quarterly hog report sent Chicago Mercantile Exchange lean hog futures sharply lower Friday, with new lows set in the February through June contracts. Front-month February fell 197 points, or 3.3 percent and closed at 57.30 cents per pound. For the week, February lost 242 points, or 4.1 percent.

Following Thursday's report, Glenn Grimes, agricultural economist at the University of Missouri, added about 1.5 million head to his earlier projection of 112 million head for 2008 US commercial slaughter. The adjusted figure, at 113.510 million, represents an increase of nearly 4 percent from the projected 2007 total.

Grimes expects first quarter commercial slaughter to be 27.935 million head, up about 4.7 percent from last year. He projects April-June slaughter to be 5.1 percent above 2007 and the third quarter figure up 5.4 percent. The final quarter slaughter is forecast up about 1 percent from this year, but at 30.750 million head it could challenge the industry's processing capacity, he said.

Producers' returns in 2008 will likely be negative by around US$3 per hundredweight on a live basis, or approximately US$8 per head, based on current grains futures prices, according to Grimes' price projections.