Hog bubble inflated by fear

Hog bubble inflated by fear

Hog and cattle markets continue to reach new levels fueled by fears of short supplies.

Hog bubble inflated by fear
FOR the pork industry, porcine epidemic diarrhea virus (PEDV) will be the elephant in the room for 2014.

Since the virus was discovered in May 2013, it has been reported in 27 states (Map) and is estimated to have killed at least 4 million piglets.

National Pork Board chief executive officer Chris Novak told Feedstuffs that PEDV will certainly be "the thing" that challenges pork producers and the entire industry this year.

"The higher prices and profitability opportunities are great, but it is no different than a grain farmer who can look at $8.00 corn but does not have any corn standing in the field," Novak said.

Much like the grain farmer in a year of drought, PEDV creates new challenges for pork producers and requires the utilization of risk management tools.

"We are facing new levels and challenges of risk management at the same time that we are facing a disease still operating in a way that confines us," Novak continued.

The fear of long-term damage to hog supplies has traders pushing hog prices to new levels. The U.S. Department of Agriculture's highly anticipated quarterly "Hogs & Pigs" report scheduled to be released on March 28 may be the pin that bursts the hog market bubble.

Until Friday's report, which will forecast the supply situation for June, traders will continue to rely on weekly slaughter data for an indication of available supplies. At market close last Thursday, USDA estimated hog slaughter for the week at 1.633 million head, 75,000 fewer hogs than a year ago.

Nevertheless, packers are currently bidding aggressively in attempts to capture enough product to fill orders. The higher prices will continue to pass through the food chain to consumers.

Still, Novak said heavier hogs are coming to market — prompted by lower feed costs — which will offset some of the PEDV losses, but there is no question that supplies will be short this summer.

While PEDV is a major concern for hog farmers today, it will soon become a larger story for consumers.

However, Novak explained that although supplies will be tight, there still will be ample pork available.

"Product will be available, but at a higher price. Still, as we look at competing proteins such as beef, pork will be an affordable option for consumers," Novak concluded.

 

Retail prices

USDA's Economic Research Service released its monthly meat retail prices for February.

All fresh beef sold for record prices, surpassing the last record set in November, with Choice beef selling for an average of $5.575/lb., up 7.6% from a year ago, and other cuts were at $5.278/lb., up 4.6%.

Composite broiler prices also increased, up 0.3% from the previous month and up 0.7% from a year ago, with the February price at $1.953/lb.

In February, pork prices were down slightly from the previous month, settling at $3.727/lb., but they were up 6.8% from last year.

Turkey prices, at $1.699/lb., declined from January but still were 6.8% higher than 2013.

According to Oklahoma State University's March "Food Demand Survey," consumers' willingness to pay for various meat products fell for chicken breast, chicken wings and steaks but increased for pork chops, ham and hamburgers (Table).

 

Meat demand

 

-------Willingness to pay, $-------

 

 

Chicken

Ham-

Pork

Deli

Chicken

Beans

 

 

Steak

breast

burger

chop

ham

wings

and rice

Pasta

January 2014

6.91

4.68

4.21

3.54

2.23

2.26

2.15

2.58

February 2014

6.87

5.04

4.06

3.47

1.97

2.51

2.04

2.65

March 2014

6.59

4.86

4.28

3.55

2.20

2.02

1.57

2.75

% change
(Feb.-March)

-4.07

-3.57

5.42

2.31

11.68

-19.52

-23.04

3.77

Source: Oklahoma State University.

 

Market roundup

Elsewhere in the livestock and poultry markets, hog prices, in general, continued to reach new heights last week, but mixed tones during summer lean hog futures trading hours at midweek signaled that market corrections may be on the horizon.

On a daily basis, lean hog futures continued to establish new records. At market close last Thursday, April lean hog futures contracts settled at $124.80, gaining $5.50 on the week.

Cash hog prices followed suit and rose to new levels, with buyers bidding at the top end of the scale. The national average negotiated carcass price was $102.40/cwt. delivered to the eastern Corn Belt and $107.11/cwt. delivered to the western Corn Belt.

Likewise, wholesale pork cutout values climbed daily and finished last Thursday at $124.80/cwt. Ham made an impressive gain last Wednesday, settling at $107.93; in a normal year, it would take an entire seasonal move to make a gain that size.

Last month, hog producers turned the best profit margin — $33.59 per head — since 1973, according to Iowa State University's estimation. The cost of production for February was $56.30/cwt., down for the 13th consecutive month.

The USDA National Agricultural Statistics Service (NASS) "Livestock Slaughter" report showed that February hog slaughter totaled 8.67 million head, up 1% from 2013. The average liveweight was 283 lb., a 6 lb. increase from the previous year.

The cattle markets were mixed last week in expectation that the March 21 NASS "Cattle on Feed" report will show increased February placements but fewer cattle on feed, according to Farm Progress analyst John Otte.

Still, it is noteworthy that fed cattle futures prices, cash fed cattle prices and wholesale beef cutout values are all at fresh new highs.

April cattle futures progressively climbed to start last week but settled lower last Thursday at $144.42/cwt. In a parallel move, fed cattle futures also were up to start the week but finished lower last Thursday at $173.625/cwt.

Market activity picked up in the southern Plains last Thursday. Fed cattle gained $2 on the previous week to hit $150/cwt. Overall, trading in all cattle feeding regions has been slow.

At last Thursday's close, the Choice cutout slipped to $241.57/cwt. and the Select cutout fell to $234.77/cwt. after increasing at the start of the week.

The NASS "Livestock Slaughter" report showed February cattle slaughter at 2.24 million head, down 5% from last year. The average liveweight was 1,330 lb., up 10 lb. from 2013.

Hog bubble inflated by fear
In the dairy markets last week, 40 lb. block cheese set a record high at $2.4275, and 500 lb. barrel cheese was also higher at $2.30/lb.

According to the USDA "Livestock, Dairy & Poultry Outlook," dairy product prices and, consequently, milk prices are expected to remain higher for 2014.

The March cheese price projection of $1.86-1.92/lb. is higher than the previous month. Butter prices and nonfat dry milk prices are also forecasted to be higher at $1.605-1.695/lb. and $1.825-1.875/lb., respectively. With higher dairy product prices, the all-milk price forecast increased to $21.40-22.00/cwt. for March.

February milk production totaled 14.9 billion lb., up 1.4% from 2013 (Figure). Production per cow was also higher, averaging 1,753 lb. There were 8.51 million cows on farms in February, 13,000 more than last February but 1,000 fewer than in January 2014.

The chicken markets were strong last week as Georgia dock prices stayed near record highs, at $1.055/lb. Breast meat finished down slightly from the previous week, at $1.90/lb. last Wednesday, while wings traded lower at $1.31/lb.

Egg prices held firm last week in all regions. Large eggs were $1.32-1.36/doz. delivered to the Northeast, $1.33-1.36/doz. to the Southeast and $1.24-1.27/doz. to the Midwest.

In the turkey markets, hens and retail-sized toms were marginally higher last week and settled last Thursday at 99 cents to $1.08/lb. for hens and 99 cents to $1.06/lb. for toms.

Volume:86 Issue:12

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