October 29, 2007

 

Record October US hog kill raise concerns for November - December prices

 

 

Large hog slaughters during October are raising concerns that price pressure could become more severe in November and December when the holidays will trim weekly slaughter rates.

 

A fourth consecutive week with federally inspected hog slaughter above 2.3 million head and no signs yet of a let up in supplies raise concerns for cash hog prices ahead.

 

So far, packers have been able to keep up with the available supplies by operating at or near capacity levels during the week and slaughtering large numbers of animals on Saturdays. With no national holidays in October, the plants have been able to operate full five-day weeks, with about half of the facilities also working Saturdays.

 

However, November will have two less weekdays than October, which at a recent daily pace of 425,000 head could result in even larger Saturday slaughters to make up the difference. A few plants also may observe the November 11 Veterans Day holiday by being dark on November 12.

 

The holiday closures could cause hog supplies to become backed up if the numbers do not ease up before that time, say some livestock dealers and commodity brokers. If supplies become backlogged, the cash market could be under additional pressure until the excess animals are processed.

 

Saturday slaughters during October have averaged about 225,000 head. Because the plants are running at or near capacity levels during the week, the only opportunity to boost weekly slaughters would be on Saturdays. Some analysts say weekend kills may need to approach 300,000 head at times before the year is out.

 

Bob Brown, private analyst in Edmond, Oklahoma, said non-holiday weekly slaughters in November typically average about 60,000 head more than in October. That could push some weekly totals close to 2.4 million head, which would require a Saturday figure of around 275,000 head.

 

Don Roose, analyst with US Commodities in West Des Moines, Iowa, said, "we are in a supply bear market. Demand is actually improving, but the market needs to kill the premium structure (built into futures) before we can reach a zone of fundamental support."

 

Erica Rosa, analyst with the Livestock Marketing Information Centre in Lakewood, Colorado, said, "if any backlog does come into play over the holidays, prices will decline (due to numbers as well as weights) and we may see larger Saturday kills." Rosa said she doesn't anticipate any major problems about slaughter capacity during the holiday period this year. She is more concerned about prices in the fourth quarter of 2008 if modest herd growth occurs as was indicated in the September hogs and pigs report and there isn't any new capacity added by that time.

 

Dan Vaught, analyst at A.G. Edwards & Sons in St. Louis, suspects that strong demand is driving the current slaughter surge, and the slippage in average hog weights in Iowa/southern Minnesota, the last two weeks suggests that the industry is pulling hogs forward a bit. However, he said traditional slaughter patterns suggest supplies will actually increase into the November-December period. Therefore, he says "a reduction in slaughter rates could be a bearish development since it would imply diminished demand from further up the processing/marketing chain--while supplies may be increasing." Vaught said he remains bearish about prospects out into January as well.

 

Dave Bauer, owner/analyst at Brite Futures Inc. in Cedarburg, Wisconsin, said "the market is in for a world of hurt if we can't find supportive news. Fundamentally, the (market) picture is very concerning. From a value standpoint, we're still seeing premium in the market out into 2008. I guess that keeps eroding unless something surfaces--changing supplies or demand."