Hogs' bull smaller

Hogs' bull smaller

- Hogs report, despite expectations, suggests producers are expanding. - Hog prices still will be higher than in 2012. - Chickens hit

THE hog report issued Dec. 28 came out with numbers that were a bit higher than analysts expected, with almost every category at 100% of year ago versus expectations of at least 1% lower than year ago.

The report suggests that more hogs will be marketed and more pork produced in 2013 and that the prices on the boards at the Chicago Mercantile Exchange are too high, analysts said in a post-report teleconference hosted by the National Pork Board.

The report "is significant in that it adjusts our price expectations lower," said Kevin Bost, president of Procurement Strategies in Des Plaines, Ill.

Steve Meyer, president of Paragon Economics in Adel, Iowa, said the higher numbers demonstrate his theory that a good many producers have become so adept at risk management -- buying corn and selling hogs on the futures markets -- that they are doing far better than would be indicated by the cash market models many analysts use.

They are avoiding losses and managing margins better than analysts are penciling up, Meyer said

Furthermore, they are betting on an end to the drought and a record-large corn crop in 2013 that will allow them to come through 2013 okay and then "take off" in 2014, he said, adding, "These guys are hog producers whose business is hog production."

However, Meyer cautioned, "the way it looks now," the drought is not being tamed, and the corn crop may not be as good as needed, so producers "are facing huge financial risk."

This risk is shown in Bost's price projections, which he put at $87 (lean carcass basis) in the first quarter of 2013, $90-93 in the second quarter, $91 in the third quarter and the mid-$80s in the fourth quarter.

Bob Brown, an independent market observer in Edmond, Okla., put prices at $85, $91, $95 and $87.

Meyer put the average breakeven in the low- to mid-$90s.

Bost and Brown said, though, there is no reason to discount the fundamentals, which were bullish coming into the report on decreased 2013 beef and chicken production and strong demand for pork, especially in the export markets.

Brown did caution that these fundamental can change quickly with any negative or positive news. Any change in production of competing meats, in exports, in currency translations, in economic conditions or in other factors "can move prices with abandon," he said.

The markets in 2012 showed that hog prices can change $10 "at the drop of a hat," he said.

No matter, Bost said, "the bull coming into the report is still there. It's just a little smaller bull."

Last week, after more time to consider the report, analysts made several additional observations.

First, the hog report (Table 1) came out with not only a larger breeding herd on Dec. 1, 2012, than on Dec. 1, 2011, but with one that was 29,000 head larger than the Sept. 1 breeding herd. Second, it reported the second-largest Dec. 1 marketing herd in history.

Those numbers would suggest an industry that's in expansion, not reconciliation, analysts acknowledged.

However, Ron Plain at the University of Missouri noted that putting together farrowing intentions with productivity -- which, at 10.15 pigs per litter, was another new record high -- represents daily slaughter that will be up just 0.3% in the third quarter and actually down 0.2% in the fourth quarter (Table 2).

Runs like those will be well within packer capacity, which is estimated at 2.355 million head per week.

Accordingly, Plain, like other analysts, lowered his price projections for this year from what he estimated following September's report, but he is still projecting prices to be higher than in 2012.

Plain said prices will be supported by limited to lower beef and poultry supplies that will make pork prices very competitive and prompt strong demand in the U.S. and worldwide.

The hog markets were 6-46 cents higher at $80.69-81.52/cwt. on a lean carcass basis last Thursday, equivalent to a $61-62 live cash hog market and 0.3% more than year ago.

Hogs and pork staged a strong performance, especially for a holiday-shortened week, on the demand fundamentals outlined following the report, according to Feedstuffs sources.

As a final hog market note: A report from Hurley & Associates in Brookings, S.D., indicates that cash market trading in hogs has declined "at an alarming rate" since the early 2000s -- from about 11% at the beginning of the decade to about 5% today (Figure).

This is jeopardizing part of producers' risk management strategies in that many producers benchmark contracts to the cash market, according to the report. Fewer hogs sold on the cash market may cause issues for future contracts, the report warns.

More information is available at www.leanhog.net/cashnetwork.

Elsewhere in the livestock and poultry markets last week, cattle did not trade in sufficient volume to establish prices and, at week-before levels, were $127/cwt., 5.0% higher than year ago.

Sources said cattle supplies are getting really tight, and feedlots held out for higher prices, asking $130 last week, while plants resisted those offers due to margin problems.

The chicken markets set another record high last week, increasing 4 cents to $1.02-1.05 and 97 cents to $1.07/lb. in the eastern and midwestern regions last Thursday, fully 33.0% higher than year ago.

Sources said breast meat was clean and firm due to two weeks of holiday-shortened plant schedules and the beginning of "diet season," and dark meat was steady, with strong demand for wings from bars and parties for the football playoffs.

The egg markets were down 3-4 cents to $1.15-1.19 and $1.08-1.10/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 0.8% lower than year ago.

Sources said demand was fairly good, but supplies were heavy and offsetting calls from customers.

The dairy markets were mixed, with butter slipping 0.25 cent to $1.4950/lb. last Thursday, 7.9% lower than year ago, and barrel and block cheese prices were both up 2 cents to $1.73 and $1.76/lb., 9.1% and 9.3% higher than year ago.

Sources noted that milk production is under control largely due to the January-November cow cull last year that was the largest 11-month cull since 1986, the year of a massive dairy herd buyout by the U.S. Department of Agriculture.

 

1. Hogs and pigs report, Dec. 1

 

2010

2011

2012

2013

2012 as %

2013 as %

Category

-Million head-

of 2011

of 2012

All hogs and pigs

64.925

66.361

66.348

--

100.0

--

Breeding herd

5.778

5.803

5.817

--

100.2

--

Marketing herd

59.147

60.558

60.531

--

100.0

--

Groups within marketing herd

Under 50 lb.

18.864

19.524

19.448

--

99.6

--

50-119 lb.

16.519

16.643

16.643

--

100.0

--

120-179 lb.

12.233

12.473

12.479

--

100.0

--

180 lb.-plus

11.531

11.918

11.961

--

100.4

--

September-November period

Farrowings

2.881

2.929

2.90

--

99.0

 

Pigs per litter*

9.89

10.02

10.15

--

101.3

--

Pig crop

28.488

29.365

29.443

--

100.3

--

Farrowing intentions

December-February**

2.872

2.843

2.864

2.865

--

100.0

March-May

2.929

2.917

2.982

2.925

--

98.1

*Actual number.

**December of one year through February of next year.

Source: National Agricultural Statistics Service.

 

2. Hog marketings and prices

 

Marketings/

Lean

Lean

Year/

quarter/week,

carcass price,

hog price,

quarter

million head

$/cwt.

$/cwt.

1998 annual

101.029

--

31.28

1999 annual

101.544

--

34.08

2000 annual

97.976

--

44.70

2001 annual

97.962

--

48.51

2002 annual

100.263

50.09

34.91

2003 annual

100.931

56.25

39.45

2004 annual

102.464

69.60

51.51

2005 annual

103.528

67.43

50.02

2006 annual

104.737

63.86

47.26

2007 annual

109.172

65.04

47.09

2008 annual

116.452

67.27

47.83

2009 annual

113.618

59.11

41.24

2010

 

 

 

1

27.630/2.125

68.32

50.41

2

26.074/2.006

79.42

59.60

3

26.930/2.072

80.70

60.13

4

29.626/2.279

69.26

50.11

2010 annual

110.260

74.47

55.06

2011

 

 

 

1

27.483/2.114

80.63

59.94

2

26.110/2.008

92.39

68.80

3

27.379/2.106

95.74

71.06

4

29.888/2.299

87.39

64.66

2011 annual

110.860

89.04

66.11

2012

 

 

 

1

28.104/2.162

86.56

62.66

2

26.659/2.051

87.76

61.79

3

27.963/2.151

87.69

61.43

4

30.409/2.339

82.90

58.50

2012 annual

113.135

86.20

61.10

2013

 

 

 

1

27.762/2.136

84.00

61.50

2

26.811/2.062

91.00

66.50

3

28.437/2.187

90.00

65.50

4

30.349/2.335

82.00

60.50

2013 annual

113.360

87.00

63.50

Note: 2012 fourth quarter is partial projection; 2013 quarters are projections. Marketings per week are simple division of quarter by 13 weeks.

Source: Ron Plain, University of Missouri.

 

Volume:85 Issue:01

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