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Ron Plain

Prior to 2004 in modern history we have never had a day in February, March, April, May, June, July, or August with a slaughter of hogs under Federal Inspection above 390 thousand head.

So far this year we have had six days in February, one day in March, four days in April, and two days in June. On Wednesday the preliminary estimate shows 392,000 and on Thursday 394,000.

This is November slaughter levels in June. I certainly hope we do not get the normal near 20% increase in daily slaughter from June to November this year.

Producers have reduced the normal seasonal increases from summer to late fall in the past three decades. In the 70's the percent increase in daily slaughter from July to November was 30%, in the 80's the increase in daily slaughter from July to November was 24% and in the 90's it declined to 20%. However, even through slaughter has become more uniform by season the fluctuation in price has not. In the 70's barrow and gilt prices declined 11% from July to November, in the 80's the drop from July to November was 13% and for the 90's it was 20%.

This bigger decline in price with a smaller increase is just another result of the more inelastic demand that we now have for live hogs.

In the last decade, the live hog prices have declined over 5% for each 1% increase in slaughter on a quarterly basis.

We are convinced this more inelastic demand for live hogs is likely to be a permanent change. Therefore, producers need to plan their cash flow needs not to be a 2% change in price for each 1% change in supply but near a 5% change for each 1% change in supply. We believe this more inelastic demand is tied to the limited flexibility of the modern efficient double shifted hog slaughter plants.

This more inelastic demand has not carried all the way to retail suppliers and price.

Demand for pork at the consumer level for January-April was up a short 4% from a year earlier. Beef demand was up a short 6% at consumer level and broiler demand at consumer level was up nearly 6%. Only turkey is not benefiting from the strong demand for meats. For this four month period turkey demand at the consumer level was down over 2%.

We believe the retail price for pork as reported by the USDA is too low for this year compared to 12 months earlier. Retail pork chop prices are reported to be 20-35 cents per pound below a year earlier in January-April this year. However, the wholesale price of pork loins for the first four months of 2004 were about 25 cents per pound higher than a year earlier. We do not believe the processor-retailer margin on pork loins have declined as the data shows for this period.

If the retail price is underestimated this year compared to 2003 our estimate of demand is too low.

The demand for live hogs for January-April 2004 was up about 12% from a year earlier.

Even with record high slaughter some days this week, hog prices were mostly higher in late week trade.

Top live prices this Friday morning were from $0.75 to $2.50 higher than a week earlier. The top prices from select markets were: Peoria $52.00 per cwt, St. Paul $54.00 per cwt, Sioux Falls $56.00 and interior Missouri $53.25.

The prices for 185# carcass 0.9-1.1" back fat, 6 sq in loin 2" deep weighted average by regions for Friday morning were: western Cornbelt $74.59, eastern Cornbelt $73.54, Iowa-Minnesota $74.82, and nation $74.16.

Our data continues to support the belief that producers are reducing the size of the U.S. breeding herd. Our preliminary estimate is that the breeding herd on June 1 was down 2% from 2003.

Slaughter this week under Federal Inspection at 1624 thousand head is not comparable to last year due to celebrating Memorial Day in a different week of 2004 than a year earlier. For the past two weeks, F.I. slaughter is estimated at 3498 thousand head --- up 4.6% from a year earlier.