March 23, 2007

 

Q2 2007 looks promising for US hog producers

 

 

The outlook for second-quarter US hog prices looks promising for producers and is expected to be the most profitable quarter of the year, according to market analysts and economists.

 

Hog prices through the first quarter have averaged modestly above the same period last year and are expected to continue that trend even as feed costs - the biggest cost of production - are up considerably from a year ago.

 

Market analysts said further growth in US pork exports has helped support cash hog prices. In January (the latest data available), exports were up 20.7 percent from a year ago, led by an impressive 38 percent boost in sales to Japan.

 

Glenn Grimes, agricultural economist at the University of Missouri, said US net-exports - or exports minus imports - of pork in January as a percentage of production was a record high at 10.87 percent. He said that was the first time in which the net-export figure has topped 10 percent of production.

 

Grimes projected April-June hog prices in Iowa/southern Minnesota to average from US$49 to US$52 per hundredweight on a live basis or US$66 to US$70 on a dressed basis. Prices a year ago for that region averaged US$51.96 live and US$65.27 dressed, he said.

 

Bob Brown, an Edmond, Oklahoma-based private analyst, sees second quarter prices averaging about US$68.33 on a 51-52 percent lean basis, up nearly US$2 from last year's average of about US$66.50. Brown said prices could vary considerably from year to year even if production is fairly flat as other factors can affect the markets.

 

Prices during the second quarter could move from a low of about US$62 in early April up to a high of about US$80 on a dressed basis later in the period, said Don Roose, analyst with US Commodities in West Des Moines, Iowa. He said prices are more likely to test the low end of his range than the high end.

 

Brown expects US hog slaughter during the second quarter to be up 2.2 percent from a year ago. Brown, who also monitors Canadian hog slaughter, projected that to be up about 1 percent for the quarter, putting the North America total at 2.0 percent above last year.

 

Grimes predicts a 1.4 percent increase in US hog slaughter for the quarter at 25.183 million head.

 

Hog weights during the quarter are expected to remain below a year ago due to high feed costs. Brown says the lower weights should result in pork production being up about 1.1 percent from a year ago, which is less than the rate of increase in his slaughter projection.

 

Roose said a weak US dollar is helping to push pork exports up because international customers do not have to pay as much for the product. The strong exports could be an even bigger factor in hog prices if the corn market moves higher still and causes a pullback in hog production, he said.

 

The hog market is closely tied to corn prices, said Dave Bauer, analyst with Brite Futures in Cedarburg, Wisconsin. If corn prices stage another upsurge, hog prices will move up as well, Bauer said. Higher corn prices will cause some hog producers to cut back or leave the business, and average weights will come down.

 

The level of success that pork producers have in controlling circovirus disease in their herds will also affect the number of animals available for slaughter in the second quarter and beyond, the analysts said. Vaccines for the disease have been shown to be effective, but producers continue to have difficulty in attaining enough vaccine.

 

Some producers are stretching their vaccine supplies by using just one-fourth to one-half of the normal dosage, Bauer said. However, that raises questions about how effective these reduced dosages will be in controlling the disease.