January 28, 2011

 

US hog prices reach 14-year high

 

 

Easter ham prices took a big jump on the CBOT, Wednesday (Jan 26), when April hogs delivery rose by the daily limit of US$3 per hundredweight to US$90.12, a 14-year high for the most active contract.

 

Hog prices surged on news that South Korea, which has had to kill about 25% of its domestic herds because of hoof-and-mouth disease, said it would suspend import duties for several months.

 

The Korean news further tightens world supplies after German exports were restricted because of dioxin contaminants found in some of its herds.

 

In the US, hog inventories were reduced by about 3% in 2010 after producers lost money in three consecutive years, beginning in 2007.

 

The impact on US consumer prices is unclear, except for a general consensus that prices for pork, which rose about 15% in the 12-month period ending in December, will rise again this year because of higher commodity costs.

 

Cattle prices are up about 25%. Hog prices are up about 35% from late 2009 and almost 80% from their lows of August 2009 as the impact of the H1N1 virus made itself felt.

 

Retailers generally have increased prices at a rate slower than the wholesale price gains. Average prices for hams rose about 8% from December 2009 to December 2010, according to USDA figures. Bacon prices are up 15% during the period, thanks to a 24% increase in pork belly futures.

 

Prices for delivery of hogs in summer months, the peak demand period for pork as Americans grill ribs and pork chops, are even higher than the April price, per hundredweight: hogs for May delivery closed at US$97.20 on Wednesday (Jan 26); June and July hogs sold at US$98.67; and August hogs sold for US$96.95.

 

The recovery in hog prices is good in the short run for Iowa's economy. The state is the nation's leading hog producer, with almost 19 million animals on feed, and cash receipts for hogs run at least US$4 billion annually.

 

Exports of Iowa pork in 2010 exceeded US$1 billion, a record, the Iowa Economic Development Commission said Tuesday (Jan 25).

 

At the Pork Congress, producers were happy about a strong market for hogs and exported pork, but they were wary of feed costs, with corn selling at a 30-month high of US$6.57 per bushel for March delivery.

 

High feed costs were a major contributor to lack of profits in the hog industry even before the H1N1 flu scare in mid-2009, and Weber said "the question will be can everybody maintain their margins with those high corn costs."

 

The high feed costs appear to make hog producers reluctant to expand their herds.

 

Lannin Zoltenko of Zoltenko Farms Inc. of Hardy, Neb., who provides boar semen to producers throughout the Midwest, said, "The higher prices for hogs mean our customers will have better financial resources. But we're not seeing a lot of increased demand that would indicate that herd-rebuilding is happening."