Banner year in store for hogs

Banner year in store for hogs

Compared to last year, hog producers are enjoying high prices and great demand.

Banner year in store for hogs
PORCINE epidemic diarrhea virus (PEDV) will continue to be the driving force for uncertainty and uncharacteristic hog market activity for the remainder of the calendar year.

Compared to a loss of $8.83 per head in 2013, hog producers should expect large returns in 2014, as long as hogs are available for market.

Lee Schultz, an Iowa State University economist, told Feedstuffs that the overall projected gain for 2014 is $62.46 per head as tight supplies, strong demand and low feed costs boost profits (Figure).

Hog prices in 2014 are nothing to complain about, even with the slow decline over the last several weeks. Still, profits will vary from the 2014 projection depending on the individual hog operation's PEDV status. The value of all hogs in the herd on the whole, however, is worth more this year.

Even with reduced slaughter so far for 2014, hog producers have stepped up to the plate by finishing market hogs to a heavier weight.

According to Ron Plain at the University of Missouri, slaughter weights are, on average, 3% heftier than a year ago and are, at times, 10 lb. heavier, which has counterbalanced death losses due to PEDV.

Figuring that hogs are sent to market six months after birth and that large PEDV losses were reported during the winter months, the largest decline in market-ready hogs is likely to occur in the July/August time frame. In addition, this also is typically the time of year when the rate of weight gain for hogs will be slowed by heat.

The hog futures markets have been anticipating a drop in the number of market hogs, which should fuel a summer rally in prices.

"The peak in hog prices came at the end of March, which is a rarity," Plain noted.

He said it is possible that the futures market is correct in its assumption that slaughter levels will plummet as a result of PEDV and the heat will take a toll on market weights, which could fuel prices closer to the peak established in March.

Steve Meyer, head of Paragon Economics and co-author of the "Daily Livestock Report," echoed Plain's outlook and agreed that hog prices will be on the rise as the summer progresses.

He noted that the tightest supply of hogs will occur in the third quarter of 2014, and net prices should average above $120/cwt. Seasonally lower prices are expected in the fall, but the PEDV impact will probably keep prices higher than normal.

Nevertheless, Meyer noted that the uncertainty really occurs in the winter months. It is unknown if sow immunity or management practices will keep PEDV to a controllable level.

At this point, lower feed costs are projected to continue now that the crops for most of the U.S. are being planted, and hopefully, ideal growing conditions will persist until harvest.

With the U.S. sow herd anticipated to increase slightly and having learned some lessons from the first year of PEDV outbreaks, Meyer is forecasting hog prices in 2015 to be lower overall.


Pork demand

Clearly, pork demand is strong. The data through March showed that pork demand for 2014 is up 4.0-4.5%, which follows an increase of 5.5% last year.

While cheap chicken would certainly hurt pork demand, Meyer explained that the chicken industry has not responded to lower feed costs by increasing production. Because current broiler production is at the same level it was in 2013, chicken prices are climbing, so it has not damaged pork demand.

Ceci Snyder, vice president of domestic marketing for the National Pork Board, told Feedstuffs that demand for pork has been quite good, but retailers are worried about supply. What's more, heading into summer, she said the interest in pork is still strong.

Although the U.S. Department of Agriculture and retail scanner data show a jump in retail pork prices, so far, pushback from consumers has not happened. Snyder added that this is surprising since disposable incomes in the U.S. are flat.

A year ago, the pork checkoff launched a national summer promotion — "Grill Like a Steak" — that highlighted new names of pork cuts to enhance value in meat cuts. In addition, the campaign was designed to reinforce proper cooking techniques for pork.

Retailers have been slow to adjust to the new names of pork cuts, and the top 10 retailers are presently at different adoption levels.

In contrast, restaurants were quicker to welcome and promote the new names, which are intended to help eliminate confusion for consumers.

At the end of the day, it is important that consumers can walk into the grocery store and purchase the same pork cut they enjoyed in a restaurant.

For global demand, Meyer said U.S. pork exports should be down 2% in 2014 due to a lack of available product, and higher prices could discourage the selection of pork globally.

Still, March was a terrific month for U.S. pork exports, which reached their highest monthly total since October 2012, at 209,704 metric tons, a $606.7 million value.

The biggest risk factor for the pork industry is always demand, Meyer concluded, although a food safety scare or disruption to exports can have a big impact on the hog markets as well.


Market roundup

In the hog markets, heavier carcass weights resulted in an increase in pork tonnage in the short term. Although slaughter runs have been trailing behind 2013 levels, the anticipated shortfall from PEDV losses has not materialized yet. Therefore, an unexpected larger supply has pressured prices downward.

Last week, weak cash prices triggered lean hog futures to stumble, with some contracts down the $3 limit on Wednesday. At the close of markets last Thursday, lean hog futures settled at $114.30/cwt.

Pork cutout values also fell last week, finishing $1.50 lower last Thursday at $113.75/cwt. Loins, hams and bellies held strong and appeared to be in good balance with demand.

Elsewhere in the livestock and poultry markets, tight supplies and higher-than-expected prices paid for live cattle in the cash market fueled feeder cattle futures to reach a record peak.

At the close of markets last Thursday, June live cattle rose $1.87 to $138/cwt., while August feeders advanced $1.47 to $197.05/cwt., a new all-time high for any front-month futures contract.

USDA reported slow trading on light demand throughout Nebraska and Iowa. However, last week's showlists in Nebraska, Colorado, Kansas and Texas were up 10,000 head, suggesting no shortage of slaughter cattle, Farm Progress analyst John Otte reported.

For beef cutout values last Thursday, Choice was down 66 cents to $233.65/cwt., and Select dropped 38 cents to $223.77/cwt.

In the chicken market, prices remained strong, with the Georgia dock price for whole broilers holding at $1.095/lb., compared to $1.05/lb. last year.

Breast meat prices jumped last Wednesday to $2.205/lb., while leg quarters were at 55 cents/lb. and wings were unchanged at $1.325/lb.

Egg prices for all regions improved slightly, with large eggs delivered to the Northeast at $1.25-1.29/doz., to the Southeast at $1.26-1.29/doz. and to the Midwest at $1.23-1.26/doz.

Volume:86 Issue:22

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