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US: Hog Markets

27 September 2012, at 9:41am

US - Margins fell further over the past month and remain extremely depressed from a historical perspective. Hog prices have been under pressure following heavy slaughter runs recently with increasing pork production. Recent weekly hog slaughter was near 2.44 million head which would be the largest in almost five years and only around 30,000 short of the all-time high set in 2007 at 2.47 million head. Hog weights have also been running above year-ago levels with year-to-date pork production up 2.25 per cent from 2011, writes Doug Lenhart.

High feed costs have led to notions that producers are in liquidation mode and culling herds, although gilt slaughter data from Ron Plain and Scott Brown at the University of Missouri call that into question. One fact is the recent press releases from Canada showing the 2nd and 4th largest producers (nearly 70,000 sows) are in financial disarray which could lead to some level of liquidation.

USDA’s September WASDE report raised corn ending stocks 83 million bushels due to larger carryover from the 2011/12 crop year and a smaller yield reduction than was expected. The national corn yield was lowered 0.6 bushels per acre to 122.8 while harvested area was left unchanged at 87.4 million acres. Corn has generally been under pressure since the middle of August, while soybean meal prices remain firm. Soybean ending stocks were left unchanged at 115 million bushels, with production down 58 million bushels from August due to a lower yield now projected at 35.3 bushels per acre. Crush was reduced which will further tighten meal supplies in the new crop year and keep prices well supported.

Many US producers continue monitoring deferred marketing periods where margins are stronger while evaluating adjustments to existing protection in nearby periods. In particular, adding flexibility to hog strategies that will allow for both increased protection to lower price levels and opportunity to participate in higher prices has been a focus recently.

4th Qtr ’12 Most Recent Offering of ($20.54), the low was ($25.00), the high has been $7.19 and the five year percentile of 2.8 per cent.

1st Qtr ’13 Most Recent Offering of ($12.12), the low was ($15.45), the high has been $6.04 and the five year percentile of 6.1 per cent.

2nd Qtr ’13 Most Recent Offering of $2.87, the low was $(0.45), the high has been $9.83 and the five year percentile of 29.5 per cent.

3rd Qtr ’13 Most Recent Offering of $3.84, the low was $3.42, the high has been $4.53 and the five year percentile of 58.3 per cent.

The Hog Margin calculation assumes that 73 lbs of soybean meal and 4.87 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $40 per cwt for other feed and non-feed expenses. Thank you to Commodity & Ingredient Hedging, LLC (CIH) for the margin data. Please visit www.cihmarginwatch.com to subscribe to the CIH Margin Watch report.