More hogs coming

PORK producers are expanding, albeit modestly, but in the context of the current markets, ever so little is ever so much.

The hogs and pigs report for March 1 (Feedstuffs, April 1) came in with an inventory of all hogs and pigs that was 1.5% larger than the year before, whereas the average pre-report estimate was 0.7%.

The report showed a breeding herd that was up 0.2%, which was in line with estimates, but a marketing herd that was up 1.6%, which was over the average estimate of 0.8%.

Also, winter farrowings were 0.4% higher than expected and 0.5% higher than forecasted in the December report and suggested that farrowings this spring will be 0.4% higher than expected and 1.0% higher than forecasted in December.

So, there are more hogs on the ground and more pigs coming, according to Feedstuffs sources.

Producers are engaged in "very modest but clear-cut expansion," the Livestock Marketing Information Center (LMIC) said in an analysis last week.

LMIC said pork production will total 23.5 billion lb. this year, 1% more than in 2012, and will exceed 24 billion lb. next year, eclipsing beef production for the first time in history.

Hog marketings and prices, which are projected in the Table, will deny producers profitability this year and well into next year, sources said, noting that their observations of continuing losses will hold, even with lower corn prices.

Steve Meyer and Len Steiner, in an edition of their "Daily Livestock Report" last week, penciled pork producer losses of $12 per head this year.

Prices will be contained due to a number of factors, including reduced consumer income because of payroll tax increases and unemployment -- with per capita disposable income lower than a year ago -- and to well-documented challenges for pork exports now that China and Russia have banned U.S. pork due to ractopamine issues.

China and Russia, the fourth- and sixth-largest export points for U.S. pork last year, account for almost $16 per head in hog prices, according to calculations from the U.S. Meat Export Federation.

There are opportunities, though, especially in pork's very competitive prices relative to beef and even chicken prices, which, while lower than pork, are record high and prompting some sticker shock.

The hog markets may have seized those opportunities last week, sources said, with hogs increasing $3.25-4.20 across the Midwest to $76.01-78.80/cwt. on a lean carcass basis last Thursday, prices equivalent to a $57-59 live cash hog market but still 2.4% under year ago.

Analysts have long expected hog prices to rally as demand for more competitively priced pork starts to materialize and said last week "that corner has turned."

If that corner has been turned, it's because consumers have accepted higher food prices, especially higher meat, poultry and dairy prices, as a fact of life, sources said.

The consumer price index (CPI) for all food rose 10.9% from 2007 to 2008 versus an average of 4.6% per year in the previous 10 years, declining a little in the 2008-09 recession but recovering to pre-recession levels by the end of 2010 and increasing every year since then, LMIC said in another analysis last week.

Within the food basket, LMIC noted that meat (primarily beef and pork) dropped 13.5 points during the recession, poultry dropped 6.0 points and dairy dropped 30 points.

All have since more than recovered, especially meat, which is now at 233.1 points on the CPI (Figure), LMIC said. This indicates not only the extent to which corn costs and consequent production decisions have affected consumer prices but potential headwinds to demand in the future, LMIC said.

What's interesting, LMIC said, is that the poultry CPI is now at 227.5 points, just 5.6 points behind meat, suggesting that poultry is starting to lose its long-term lower-price advantage over beef and pork.

Market roundup

The dairy markets staged a dramatic increase in prices last week as rising worldwide demand for dairy products due to drought in Oceania was increasing orders for U.S. dairy products and offsetting excess production in the U.S., sources said.

Butter increased 7 cents last week to $1.70/lb. last Thursday and was 18.3% higher than year ago. Barrel and block cheeses increased 6.5 cents and 4.5 cents to $1.6625 and $1.7375/lb. and were 13.7% and 16.6% higher than year ago.

Grades A and Extra milk powder increased 12.25 cents and 2.0 cents to $1.6825 and $1.58/lb., 33.8% and 24.7% over year ago. Extra rose for the first time since October.

Drought is so terrible in Australia and New Zealand that milk producers are culling herds rapidly, sources said. The cull in the state of Victoria, where most of Australia's dairy production is located, is up 15% from last year, and the cull in New Zealand is up 77%.

Declining Oceania production and increasing prices present "a huge opportunity" for U.S. dairy production, the California Milk Producers Council noted in its March 29 newsletter.

Meanwhile, the National Agricultural Statistics Service (NASS) last week announced plans to report an estimate of U.S. milk production across all states for every month through September using "various sources of administrative data."

NASS acknowledged that milk production is a critical element of the monthly milk production report it suspended last month -- along with a number of other reports -- to meet sequestration requirements (Feedstuffs, March 18). Other important statistics, including milk cow numbers and milk produced per cow, will not be provided.

NASS said the decision to issue the estimated milk production information is part of the agency's continuing evaluation of its fiscal 2013 budget situation and its commitment "to timely, accurate and useful data" for U.S. agriculture.

Elsewhere in the livestock and poultry markets, cattle were unchanged to up $2 last week at $128/cwt. in Kansas and the Southwest last Wednesday and $129/cwt. in Nebraska last Thursday. Prices were 5.3% higher than year ago.

The action in the cattle markets over the last two weeks indicates that the spring rally has started and that cash cattle and beef prices will soon establish record highs, according to Bob Price at North America Risk Management Services Inc.

However, the U.S. economy cannot support a $200 wholesale beef market, and there will be a large supply of inexpensive pork and an even larger supply of inexpensive chicken, Dennis Smith at Archer Financials said in an afternoon wire, so any rally will be short lived.

The egg markets were, as expected, sharply lower, falling 28 cents to $1.16-1.20 and $1.06-1.08/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 4.1% lower than year ago.

Sources noted that demand was light, supplies were heavy and buyers were sitting back and waiting for the even lower prices expected this week as markets restructure for the post-Easter period. "Buyers have been down this road before," one source said.

Prices could fall another 10 cents this week, sources added.

The chicken markets were mostly steady, with good demand for new products in the quick-service restaurant sector and for tray pack promotions in the retail trade, sources said.

Chickens were down 2-3 cents from record highs the week before to $1.05-1.11 in the East and 98 cents to $1.05/lb. in the Midwest last Thursday but still were 27.8% higher than the year before.

Full wings, however, were coming down hard, dropping 25-30 cents to $1.15-1.30/lb., 27.5% lower than year ago. Sources attributed this to buyers having completed their college basketball tourney needs.

The turkey markets were unchanged.

Volume:85 Issue:14