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Review of the U.S Hog Market - August 2003

by 5m Editor
20 August 2003, at 12:00am

Our Monthly look at the trends in US Hog Market and what effect these may have on future prices - Written by James Mintert, Kansas State University. This months report discusses how the industry has returned to profitability this spring and, based on July’s weekly sow slaughter, it looks like liquidation is coming to an end. During July sow slaughter fell nearly 3% below last year.

Overview

James Mintert
James Mintert, Professor and Extension Specialist, Livestock Marketing, Kansas State University

Pork and hog prices have declined since the start of the summer, but are still well above a year ago. National average base prices from early July through mid-August averaged $59/ cwt. (carcass weight), up 12% compared to a year ago. The pork cutout during the first half of the summer quarter averaged $63, up 11% compared to 2002. The year-to-year price increase occurred despite the fact that hog slaughter and pork production this summer (through mid-August) were larger than last year.

Slaughter Larger Than Expected So Far

Pig crop reductions this past winter and spring implied that this summer’s hog slaughter would decline 3 to 4% compared to last year’s large slaughter level. Hog slaughter last year was unusually large in relation to pig crop size, especially in the last half of summer 2002 as federally inspected (F.I.) weekly slaughter volume exceeded 2 million head in late August. But F.I. hog slaughter from early July through mid-August 2003 was 1% larger than in 2002, averaging 1.837 million head per week.

Fig. 3
Fig. 3

Weekly hog import data from Canada indicates that most of the year-to-year increase in slaughter was attributable to increases in Canadian slaughter hogs.

During 2002, weekly F.I. hog slaughter exceeded two million head four times from mid-August through late September. That’s not expected to happen this year. In fact, there’s still a good chance that hog slaughter could fall 3% below a year ago during the last half of the summer. But that still means July-September 2003 hog slaughter will only fall about 1% below a year ago, which means that the domestic hog supply was 1 to 2% larger than anticipated based upon USDA’s June Hogs and Pigs report.

Hog slaughter this fall is expected to drop below a year ago, but the reduction could be smaller than originally forecast. Slaughter forecasts based upon USDA’s June report indicated that fall quarter slaughter would decline 2 to 3%, compared to 2002’s. However, if the pattern established this summer continues, rising imports from Canada could trim the expected slaughter reduction to just 1 to 2%. And if domestic hog supplies are larger than expected (as they have been this summer), the year-to-year slaughter decline could be even smaller.

Fig. 3

Weights Push Pork Production Up

Live hog weights averaged 263 pounds during July, 1% heavier than last year. The weights increase nearly matched the long term trend for weights to rise about 0.9% per year. The increase in weights meant that pork production during the first half of the summer averaged about 2% above a year ago. Longer term, weights are expected to follow the long-term trend and remain about 1% heavier than in 2002.

Sow Slaughter Drops Back

Fig. 3

During the first half of 2003, sow slaughter was 2% larger than last year as hog producers responded to ongoing losses in the hog sector by reducing the size of the breeding herd. The industry returned to profitability this spring and, based on July’s weekly sow slaughter, it looks like liquidation is coming to an end. During July sow slaughter fell nearly 3% below last year.

The reduction in sow slaughter does not signal that the industry has shifted from liquidation to expansion, but it does provide an indication that, combined with ongoing productivity improvements, year-to-year increases in pork production are possible by late 2004.

Rising Imports From Canada

Live hog imports from Canada accelerated following imposition of the ban on Canadian beef exports. Declining beef prices in Canada put pressure on pork prices and pork packer margins and actually led to one Canadian hog slaughter facility's closure. The result was even larger hog exports to the U.S. During January-June live hog imports from Canada rose 10% compared to last year. But live hog imports from Canada during June alone rose 33% above 2002’s. Weekly hog import data, which is subject to revisions, indicates that barrow and gilt imports from Canada rose 78% from early July through the first week of August. Slaughter hog imports from Canada are expected to remain large the rest of this summer and fall.

Fig. 3

Pork imports during the first half of 2003 increased 19% above 2002’s. The bulk of the pork import increase came from Canada as Canadian imports rose about 18% above a year ago. Exports were also larger than in 2002, but not enough to offset the rise in imports. As a result, net pork exports fell 13% below a year ago during the first six months of 2003.

Base Price Forecasts

This time last year hog prices collapsed as hog slaughter surged. National average base hog prices plummeted from a weekly average of $53/cwt. in early August 2002 to $35/cwt. in early September. A repeat of last year is not in the cards in 2003 because slaughter is unlikely to ratchet up as it did in 2002. Instead look for prices to trade in the mid-$50’s for several weeks before heading to the low $50’s after Labor Day. Lower prices are on tap for this fall, but are expected to average in the high $40’s to about $50, 10 to 15% higher than last fall. How low prices go will largely depend on how large hog slaughter is this fall. A continuation of this summer’s pattern implies that slaughter might only be 1% below fall 2002’s and that prices will average near the low end of the projected range.

Fig. 3

Weekly updates (in graphical form) of these price forecasts are also available on the K-State Livestock & Meat Marketing Web Site (www.agecon.ksu.edu/livestock) in the weekly electronic publication entitled Hog Price & Supply Graphs.

Information provided by KSU Livestock report. For more information visit the KSU Livestock website.
Reproduced with permission.