October 1, 2001
HOG PRICES GET A BOOST
The USDA had a pleasant surprise
for hog producers on September 28, when they reported that market
hog supplies would be about 2 percent lower this fall and winter.
The report will likely force traders to increase their price expectations.
Producers once again reported that they are going to increase
farrowings in the next two quarters. However, for the past several
quarterly reports, producers have indicated intentions to increase
farrowings, but they have not followed through. So, the market
has to doubt whether they will expand this time as well.
Looking back to the summer quarter,
pork supplies were expected to be up about 2 percent, but actual
supplies were down nearly 2 percent. This was because USDA reports
had over-estimated the size of last winter's pig crop. As a result,
data for the size of previous pig crops was revised downward in
the September report. As an example, the pig crop of last winter
was revised downward by 3.3 percent and the pig crop of last spring
was revised downward by 1.5 percent. This means that the breeding
herd was probably never as large as indicated last winter.
On September 1, the breeding herd
was down a little more than 1 percent. With the revisions mentioned
above, farrowings have been contracting since the final quarter
of 1998. Contraction now spans 11 quarters, which is a very long
period as compared to previous hog cycles.
The market herd on September 1 was
down 1 percent, with the number of pigs available for market in
October down about 1 percent and the number available for market
in the winter down more than 2 percent. Farrowing intentions are1
percent higher for the fall and up over 3 percent for this coming
The number of pigs per litter seems
to have reached a plateau for now. This past spring, litter size
was 8.85, compared to 8.86 in the previous year. In the summer,
litter size was 8.82, compared with 8.84 the previous year. Of
course, the number of pigs saved per litter had been on a sharp
upward trend prior to this year.
The continued decline in the breeding
herd is concentrated in four states. The breeding herd was down
by 40,000 animals in Iowa, 30,000 in Colorado and Indiana, and
20,000 in Nebraska. Expansion of the herd was noted in the northern
tier of states, with South Dakota, Minnesota, and Wisconsin each
adding 10,000 animals. Kansas, Texas, and Pennsylvania also added
10,000 animals each.
Given the numbers in the Quarterly
Hogs and Pigs report, pork supplies are expected to be nearly
unchanged this fall, down 1 to 2 percent in the winter, up about
2 percent next spring, and up by nearly 5 percent next summer.
Domestic pork demand has remained favorable in 2001. Retail pork
prices have been at record high levels with pork production nearly
unchanged. Higher prices with little change in supply generally
signals better demand. Exports were moving at a record pace through
July, but the triggering of the Japanese import safeguard in August
has likely slowed the pace to our largest customer. The recent
discovery of mad cow disease in Japan, however, will bolster Japanese
pork imports as consumers there shift away from beef consumption
and substitute both pork and poultry.
Hog prices this fall are now expected
to average in the mid-$40 for live prices and in the lower $60s
for carcass based prices. Seasonally, hog prices can be expected
to dip into the lower $40s in late October and early November,
but it is now much less likely that some daily prices will be
in the higher $30s.
Winter prices may not be much different
that those in the fall, at least for averages, with the spring
rally returning prices to the higher $40s for live prices and
mid-$60s for carcass prices. If producers finally do expand the
breeding herd, as they are once more saying, summer prices will
be down $4 to $5 from this past summer when live prices averaged
$51. This would mean that next summer prices could average in
the mid to higher $40s for liveweight prices and low $60s for
The overall outlook continues to
indicate that hog producers will operate in the black for the
next year, extending through the summer of 2002. Prices over the
next year are expected to average in the $45 to $48 price range
on a live basis, with costs in the higher $30s. Producers will
be favored with lower fuel costs, lower interest rates, and lower
soybean meal prices. These will be offset by higher costs for
corn and labor.
Moderation in expansion plans remains
the key to maintaining profitable prices in the longer run. Concerns
about a slow growing economy in the U.S. and Asia will only have
modest price lowering impacts on hog prices as pork consumers
alter their pork consumption very modestly as incomes move up
Issued by Chris