Largest hog breeding inventory increases seen near new processing plants.

Krissa Welshans 1, Feedstuffs Editor

July 19, 2018

5 Min Read
LIVESTOCK MARKETS: Animal protein utilization expected to grow
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The U.S. Department of Agriculture’s June “Livestock, Dairy & Poultry Outlook” projected growth of the 2019 supply of red meats, poultry, eggs and milk and disaggregated the growth into its components. For the July outlook, USDA economists looked at the breakdown of 2019 utilization growth for these commodities.

Similar to the supply forecast, USDA said 2019 forecasts indicate that utilization also will grow for U.S. beef (up 2.1%), pork (up 3.5%), lamb (up 2.3%), broilers (up 2.0%), turkey (up 0.3%), eggs (up 1.7%) and milk (up 1.1%).

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According to USDA economist Kim Ha, total utilization consists of domestic disappearance, exports, ending stocks and -- for eggs -- hatching use. Greater disappearance will be the main reason for rising usage across all seven commodities, he explained.

“Expanded exports are also expected to make up a notable portion of the increase in utilization for pork, broilers, beef and lamb,” Ha noted. “Conversely, milk and turkey exports are forecast to decline.”

Lower turkey exports will likely be reflected in a combination of higher domestic disappearance and larger stocks, and both milk ending stocks and exports are lower, with increased domestic disappearance.

For eggs, Ha said in addition to growth in stocks and use of table eggs, part of the total usage growth for eggs can be attributed to an expected increase in hatching use.

Largest hog breeding inventory increases seen near new plants

The June USDA “Quarterly Hogs & Pigs Report” shocked many when it indicated that the U.S. inventory of breeding animals increased by more than 200,000 head, or more than 3%. Analysts had expected only a 1.7% increase.

In the latest “Livestock, Dairy & Poultry Outlook,” USDA said more than 60% of the additions to the national breeding inventory came in states proximate to the new Midwestern processing facilities in Michigan, Minnesota and Iowa. The largest increases were seen Illinois and South Dakota, each adding 40,000 animals to their respective inventories.

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Based on the June report of market hog weight groups, USDA said third-quarter 2018 commercial pork production is expected to be about 6.5 billion lb., a 5% increase in production from a year earlier.

A large supply of hogs as well as tariff impacts will pressure prices of live equivalent 51-52% lean hogs for the balance of 2018 and the first half of 2019, USDA noted.

USDA expects hog prices in the third quarter of 2018 to average around $47-49/cwt., about 14% below a year ago. Fourth-quarter prices are forecasted at $35-37/cwt., almost 20% below prices in the fourth quarter of 2017. For 2018 as a whole, USDA said average hog prices are expected to average $45-46/cwt., about 10% below prices in 2017.

Looking into 2018, the outlook forecasts first-quarter 2019 prices to average $39-43/cwt., about 17% below a year earlier, and second-quarter prices are expected to average $42-46/cwt., more than 8% below a year earlier. For 2019, USDA forecasts prices to average around $40-44/cwt., which is about 7% below prices expected for 2018.

“Full-year hog prices forecast for 2018 and 2019 imply that hog producers will be challenged to cover full costs of production, given USDA forecast prices of corn and soybean meal for this year and in 2019,” USDA agriculture economist Mildred Haley noted.

Ham data suggest limited tariff effects

The outlook also reported that daily ham primal price data suggest that the initial 10% tariff Mexico imposed on U.S. pork has had limited price effects.

Haley noted that ham prices did fall off considerably toward the end of June compared to price dynamics of a year earlier and the three-year average for the end of June/early July period. This was also prior to the implementation of the 20% tariff.

“Lower ham prices starting in early July could signal lower export demand,” Haley said.

USDA will be closely monitoring weekly export sales and cold storage data, which will provide continuing clarity as to the ongoing effects of the tariffs on U.S. ham shipments to Mexico.

Market recap

August live cattle futures saw some gains this week, despite closing lower Tuesday and Thursday. Nearby contracts closed higher Monday at $106.925/cwt. but lower Thursday at $108.90/cwt.

August feeder cattle futures were mixed this week but also posted gains. Nearby contracts closed at $152.375/cwt. on Monday and were unchanged Thursday at $154.45/cwt.

The Choice and Select beef cutouts closed lower Thursday at $204.49/cwt. and $196.92/cwt., respectively.

August lean hog futures continued to fall this week, closing lower Monday at $69.20/cwt. and Wednesday at $67.20 before recovering some of the losses into Thursday’s higher close of $67.25.

Pork cutout values were mostly higher this week. The wholesale pork cutout closed lower at $82.69/cwt. Loins and hams were higher at $76.93/cwt. and $54.30/cwt., respectively. Bellies were also higher at $173.49/cwt.

Hogs delivered to the western Corn Belt were lower, closing Thursday at $71.68/cwt.

The U.S. Department of Agriculture reported the Eastern Region whole broiler/fryer weighted average price on July 13 at $1.1396/cwt.

According to USDA, egg prices were steady, with a lower undertone. Offerings were mostly moderately to heavy, while supplies were light to heavy. Demand was light to mostly moderate.

Large eggs delivered to the Northeast were slightly lower at $1.44-1.48/doz. Prices in the Southeast and Midwest were lower at $1.52-1.55/doz. and $1.38-1.40/doz., respectively. Large eggs delivered to California were lower at $1.96/doz.

For turkeys, USDA said the market was steady. Offerings have been light to moderate, and demand has been light. Prices for hens and toms were unchanged at 73-84 cents/lb. and 74-86 cents/lb., respectively.

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