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CME: Federally-Inspected Slaughter up 4.6 Per Cent

28 August 2012, at 10:09am

US - More on last Friday’s discussion of hog marketings and the plummet in cash hogs and lean hogs futures. Last week’s federally-inspected (FI) hog slaughter came in at 2.265 million head, write Steve Meyer and Len Steiner, in the Livestock Report of 27 August.

That is the highest level of the year, up 4.6% from last week and a whopping 6.7% higher than one year ago. The average weight for hogs harvested Monday-Thursday (Friday data will not be available until later this morning) was 201.2 pounds, up 0.3 pounds from last week and 1.3 pounds from one year ago. Estimated pork production for last week is 454.3 million pounds, 7.2% large than one year ago.

It is not hard to see the reason for lower hog prices – LOTS MORE PIGS AND LOTS MORE PORK. While there are certainly some valid reasons (heat, rising hog prices — Friday’s DLR addresses them) to conclude that some hogs may have been backed up a bit, it is doubtful that slower performance is the complete driver of a surge of this magnitude. Only time will tell whether the Hogs and Pigs report inventory estimates were correct but we are hearing MANY reports of producers making unusually bold efforts to reduce market weights. At these feed price levels, the marginal cost of the last few “normal“ pounds of gain may indeed be higher than the average hog price of the past week. In addition, there are growing concerns about being able to source feed next spring and summer so a pound saved now is a pound that can be accessed later. Finally, producers know all too well than once the calendar changes to September hog numbers are typically large enough to push the capacity of U.S. slaughter plants putting pricing leverage in the hands of packers and limiting the number of pigs that can be “hurried“ to market. If weights are to be reduced, they must be reduced in August and the past two weeks suggest that the effort is on.

So why have reported weights not decreased? Mother nature. Temperatures cooled sharply the second week of August. Pigs that had not eaten or grown well all summer breathed a sigh of comfort and walked to the feeders. The extra intake and growth has, we think, offset the reductions that we would otherwise have seen. Average barrow and gilt weights have increased slowly over the past four weeks — a period that usually marks the lowest weights of the year.

If all of this discussion of lower weights, pulling hogs forward, etc. is true, we should see lower-than-expected hog numbers around October 1. Further, they should be lighter than normal. They will almost certainly not be lighter than those being sold now but this past couple of weeks plus growing concerns about the quality of this corn crop both suggest that the seasonal increase could be smaller than its normal 6 pounds of carcass weight.

And what about sow slaughter? While actual sow slaughter data run two weeks in arrears, the purchase numbers in USDA’s LM-HG230 report indicate that slaughter for the past two weeks has been about “normal“ and significantly lower than at the end of July. Sharply lower sow prices will do that and producers have hardly had enough time to respond to last week’s $4-$6/cwt. increase in sow bids. The return of school days will improve demand for breakfast sausage, adding value to these sows and driving bids higher. Producers will try to maintain herds but many may not have the financial ability to do so.