Hog market panic train derails

Hog market panic train derails

Hog market reacts to USDA report, while overall higher beef and pork prices will likely cause consumers to shift to poultry.

ALL inventory numbers in the U.S. Department of Agriculture's "Quarterly Hogs & Pigs" report came in higher than pre-report estimates, which makes the report bearish versus the trade expectations.

Although the report was the first glance at the impact of porcine epidemic diarrhea virus (PEDV) on future hog supplies, especially for the upcoming summer months, many market observers are debating if the report accurately reflects the current supply of hogs.

The total U.S. hog inventory on March 1 came in at 62.9 million head, down 3.3% from last year (Table).

Similarly, the inventory of market hogs was down 3.7% to 57 million head. Market hogs and pigs weighing less than 50 lb. and weighing 50-119 lb. indicate the rate of PEDV survival. The report showed 18.1 million head for pigs under 50 lb., down 4% from 2013, and 15.7 million head for pigs weighing 50-119 lb., down 3%.

Still, speculation remains, in some instances, on the actual number of available hogs to slaughter from late-spring into summer. Based on the USDA report, the inventory of 120-179 lb. hogs, at 12.8 million head, was 2.9% lower than the previous year, and 180 lb.-plus hogs dropped 4.8% from 2013.

According to the "Daily Livestock Report," taking the USDA report as it stands, hog slaughter for the second quarter of 2014 would come in 3.5% lower than 2013, and third-quarter slaughter would be down 4.0-4.5%. Accounting for heavier hog carcass weights, the net estimate for the second and third quarters would be adjusted to 2.0-2.5%, which is significantly less than where futures are currently trading.

However, authors Steve Meyer and Len Steiner noted that some market participants question whether the current USDA survey properly portrays the dynamic created by the spread of PEDV.

The March 1 breeding herd inventory number in the USDA report was in line with the pre-report estimate of 5.8 million head, a 0.3% increase from last year and 94,000 more than on Dec. 1, 2013. More important, the farrowing intention for March through May and June through August increased 2.4% and 2.0%, respectively, over 2013, which potentially could boost fourth-quarter 2014 and first-quarter 2015 pork supplies.

The December-to-February pigs per litter survived and farrowing rate during the same period illustrated the direct impact of PEDV: While farrowings were up 2.9%, the actual number of pigs saved was down 5.5% versus 2013.

At the end of the day, trust in the reported numbers will drive the hog market's direction. Futures traders treaded lightly last week, and this will continue until they are confident that the hog inventory has been restored.


Hogs and pigs report, March 1





2014 as %


-Million head-

of 2013

All hogs and pigs





Breeding herd





Marketing herd





Groups in marketing herd

Under 50 lb.





50-119 lb.





120-179 lb.





180 lb.-plus





Dec.-Feb. period






Pigs per litter





Pig crop





Farrowing intentions











Source: U.S. Department of Agriculture.


Poultry report

Hog market panic train derails
As far as market fundamentals go, the cards are stacked in favor of poultry this year as tight pork and beef supplies push those prices higher (Figure).

However, a recently released Rabobank report shows the 2014 global forecast shifting to bearish conditions in all markets except the U.S. The changing market conditions are driven by grain price hikes caused by turmoil in the Ukraine, an avian flu outbreak in China and weaker economic conditions in Asia.

For the U.S. poultry sector, expansion slowed after prices dropped 20%, while feed costs declined 10% in the fourth quarter of 2013.

Since producers' margins are thin, the supply growth rate is continuing into 2014, as indicated by eggs set, which rose 1% year over year, compared to a 5% increase last summer. After adding the 1% bump in bird weights, chick production has increased 2% in 2014.

The downward trend in leg quarters prices, which fell 14%, contributed to lower poultry prices in the last quarter of 2013. A sharp decline occurred in mid-September because fewer shipments went to Mexico, spurred by a rebound in its domestic supply, lower U.S. feed costs and an increase in Brazil's competiveness after the devaluation of the Brazilian real.

Although profit margins in the first quarter are expected to decline for the third straight quarter, the outlook for the remainder of 2014 is favorable as poultry prices continue to rise, according to Rabobank.

Moreover, upward pressure on ground beef prices fueled by the low cattle inventories will help breast meat items gain a larger share of the menu at fast-food restaurants.

In Mexico, a recovery is expected in chicken meat production after an outbreak of avian influenza. Broiler farm capacity should be back to normal in the next several months. Rabobank estimated chicken meat production to increase 1.3% to reach 2.94 million metric tons, which will stabilize Mexico's imports.

Demand for chicken should be strong among Mexican consumers, especially as beef and pork prices climb. Still, chicken meat prices will be higher than pre-outbreak levels.

Brazil's poultry production finished 2013 lower, followed by declining prices. The export market will be the wild card for Brazil this year. Export performance will be the key to improving the country's domestic prices. The anticipated further depreciation of the real will give Brazil a competitive edge over the U.S.

Weaker demand and production expansion reduced the European Union's broiler industry profit margins at the end of 2013. Therefore, prices in the EU have declined, although offset by lower feed costs.

The next quarter will be challenging because South Africa — the EU's largest export market — is considering imposing high antidumping duties on imports from the Netherlands, the U.K. and Germany, according to the Rabobank report.

China's poultry sector once again was hit hard by avian influenza in the first quarter. With more than 200 human cases of H7N9 avian influenza in the 2013 fourth quarter, consumers fear that poultry is not safe and are purchasing less chicken. As a result of consumer concern, chicken prices remained weak in January and February, which typically is the seasonal peak for consumption.

Furthermore, poultry producers' profit margins are relatively low. Demand and production for poultry in China are expected to be low in the first and second quarters.


Market roundup

Elsewhere in the livestock market sectors, the hog markets reacted to the "Quarterly Hogs & Pigs" report, the cattle market was mixed and chicken markets remained steady.

In reaction to the USDA report, hog futures slipped last week as the panic train derailed. After fluctuations all last week, lean hog futures settled at $125.75/cwt. for the April contract, but summer contracts slipped even further.

For cash hogs last week, packers were bidding $125.01/cwt. for the eastern Corn Belt and $127.80/cwt. for the western Corn Belt. Pork cutout values started the week steady but finished down 3.5 cents to $129.91/cwt. The surge of record-high pork prices will certainly dampen demand in the upcoming months.

It is worth noting that PEDV reports for the week of March 23 tallied 247 cases, continuing a downward trend; however, a case was discovered in Vermont, bringing the total number of states affected by PEDV to 28. PEDV reports will likely drop during warmer weather.

Cattle futures were marginally lower last week but gained back some of the loss by Thursday's close at $145.15/cwt. Similarly, feeder cattle closed at $178.825/cwt., a slight increase from the previous week. Wholesale beef cutout values declined all of last week, which will make it difficult for feedlots to find higher bids for finished cattle.

In the chicken markets, the Georgia dock was $1.0625/lb., 4 cents higher than the previous year. After gaining at the start of last week, breast meat traded lower at $1.97/lb.

Egg prices for all regions gained 19-21 cents last week prior to the traditional season for egg hunts. Large eggs were $1.63-1.67/doz. delivered to the Northeast, $1.65-1.68/doz. to the Southeast and $1.60-1.63/doz. to the Midwest.

Volume:86 Issue:14

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