US sow prices may be on bubble after sharp run-up

 

 

Prices for sows sent to slaughter for processing into sausage and other pork products could be on a bubble after a recent sharp run-up.

 

According to USDA data, sow prices have surged in the past two weeks, especially for the bigger, better-conditioned animals. The USDA's sow-market report Thursday (Feb 25) showed prices for animals weighing 450 pounds or more have bounced US$4 to nearly US$5 per hundred pounds, or about 8%, from a week ago. The latest prices are up US$9 to US$10 from a year ago. But the high prices may not last, some analysts predict.

 

While USDA shows the average plant-delivered prices for the heavier sows from US$61 to nearly US$64, some isolated sales have been reported as high as US$70 on a live basis.

 

Prices paid by processors for the animals can depend upon demand for the pork products produced from them and whether hog producers are trimming or adding to their breeding herds. Normal culling of sows and replacing them with gilts, or younger female hogs, can also lead to peaks and valleys in the number of sows available in a given week.

 

US swine producers began reducing the breeding herd in mid-2008 due to record-high feed costs. Heavy financial losses through all of 2008 and 2009 led to more sow-herd reduction in the US as well as in Canada.

 

With production reduced, hog and pork prices have rebounded since late 2009 and are now pointing to a profitable outlook at least for the summer and early autumn, based on where lean-hogs futures are trading at the Chicago Mercantile Exchange. The summer contracts are trading well above breakeven levels for hog producers and carry wide premiums to current cash prices.

 

An improved slaughter-hog and pork-market outlook has caused producers to sell off fewer of their breeding animals, which has contributed to the rebound in sow prices.

 

A solicitation by the USDA on February 17 for the purpose of purchasing 4.788 million pounds of cooked pork patties to be made from sow meat only also likely helped push sow prices higher, analysts said. Offers from potential supplies were due to USDA on February 22, and acceptances will be announced by midnight CST on Friday, according to the USDA's Master Solicitation, Invitation No. 912.

 

The invitation said shipments to the designated delivery points would be between March 31 and June 15 of this year.

 

Industry participants and analysts said the supplier offers to USDA's invitation may or may not be accepted. For example, if the USDA decides that prices at which the offers were made are too high, it may purchase only part or none of the product included in the invitation. In August of 2008, USDA cancelled an invitation entirely.

 

If that happens again, sow prices may turn lower after the rapid run-up despite fewer being marketed.

 

Ron Plain, agricultural economist at the University of Missouri, said the spread or difference that sows hold over other slaughter hogs now "looks unsustainable." Sow prices at times do carry a premium to butcher hog markets, but the advantage tends to not last very long, he said.

 

Analysts and livestock dealers said producers with sows to be sold anytime in the next 30 days may benefit by selling them as soon as possible to take advantage of the current high prices.