Pork turning point

PORK production has reached "the turning point" toward expansion, analysts said after the release of the March hogs and pigs report last week.

The breeding herd is larger than year ago -- albeit modestly -- the marketing herd is larger than year ago and the 120-179 lb. pigs in the marketing herd are considerably larger than year ago (Table 1), noted Jim Robb at the Livestock Marketing Information Center in Denver, Colo.

"So, there are larger supplies coming over the near term," and they're coming "in an environment of relatively high feed costs," he said on a post-report teleconference hosted by the National Pork Board.

"We would have to view that as slightly negative," Robb said.

"We will have more pigs than expected," added John Nalivka, president of Sterling Marketing in Vale, Ore.

He said pork producers were experiencing losses of as much as $60 per head last summer after corn prices spiked to new record highs as the worst drought in 50 years set in across the Corn Belt.

However, over time, Nalivka said grain prices started to ease, hog prices started to rise and losses started to fade, which encouraged producers to hold production steady or increase production. "That's had a lot to do with where the industry is headed," he said.

Another factor is the ongoing improvement in pigs per litter, which was another record high of 10.01 pigs for the December-February period, said Victor Aideyan at HISGRAIN Commodities in London, Ont.

The North American industry is tremendously efficient, he said, which means that if the breeding herd grows modestly, the marketing herd grows significantly -- indicating "that there will be a robust increase in hog numbers in the second quarter and beyond."

Pork producers also shook the dice and rolled what they wanted, analysts said.

"The general thinking" since last fall has been that corn growers will plant record corn acreage this spring and that there will be sufficient moisture for a record corn harvest, which would make corn prices this year very manageable, Nalivka and Robb said, adding that producers are expanding into that scenario.

The scenario found support in the prospective plantings and quarterly stocks reports last week, which indicated that growers intend to plant 97.3 million acres to corn -- the second most in history -- and that corn stocks are far larger than expected. The combination immediately pulled corn prices under $7/bu.

Producers were counting on higher hog prices and lower corn prices, Nalivka said, so "this was a motivation (to expand) coming into 2013."

However, profits still will be elusive, the analysts said. They generally have prices this year in the low $80s, lean carcass basis, and breakevens that will eventually decline into the mid-$80s. Producers will approach profitability in the next three to four months but are not likely to actually get over the line, they said.

The hog markets were up 63 cents in the eastern Corn Belt and up $3.21 out west last week to $71.82-75.45/cwt. on a lean carcass basis last Thursday, equivalent to a $54-57 live cash hog market and 6.5% under year ago.

Packers were actively looking for hogs last week, and producers were current in their marketings, lending some strength to the markets, according to Feedstuffs sources.

Feedlot report

Other noteworthy reports last week included the feedlot inventory report, which analysts greeted as positive due to February placements that were far fewer than expected and, indeed, were the smallest February placements in the history of the feedlot series (Table 2).

Analysts said placements were a consequence of two major snowstorms that limited movement, big cattle feeding losses that discouraged placing feeders and tight feeder supplies to begin with.

The feedlot situation continues to set up what should be extremely limited fed cattle supplies for the rest of this year and, therefore, limited beef production, which should support high to record-high fed and wholesale beef prices, noted Bob Price at North America Risk Management Services Inc. in Chicago, Ill.

However, he cautioned that this outlook depends on consumer beef demand that already is at record-high retail prices. "Beef supplies set the direction of (beef and cattle) prices, but beef demand sets the magnitude," he said in a report to clients.

The cattle markets did increase $3.00-3.50 last week and were $127-129/cwt. in Nebraska and $127.128 in Kansas and the Southwest last Thursday, 1.6% higher than year ago.

Sources noted that cattle prices rose despite a $4-5 break in beef prices. However, they said beef could rally this week since retailers will have cleared their Easter ham and turkey supplies and will be interested in offering some beef features, especially if the weather improves enough to ignite the grills.

If packers can get higher prices for beef, cattle prices should hold steady or maybe pick up another $1-2, sources said.

Cold storage report

The cold storage report showed large stocks of meat and poultry (Table 3), but this was due mostly to chicken and turkey stocks as chicken companies continue to expand and turkey processors continue to work with excess production from last year and some sluggish demand out of the gate this year, sources said.

At first glance, pork stocks also looked substantial, but Dennis Smith at Archer Financials in Chicago suggested that there were actually positive signs in pork storage in that: belly stocks were down 31% from year ago at the end of February; ham stocks were unchanged from year ago versus being 10% over at the end of January; a critical export item -- butts -- was just 2% over year ago versus being 15% over at the end of January, and total pork stocks were just 2% over year ago versus being 3% over as of Jan. 31.

Ribs were up 27% but were being moved into storage in anticipation of value demand taking hold soon as consumers replace beef with pork, Smith said.

The report suggests that pork demand has been good -- "better than the market thinks," he said in a morning wire.

In the poultry sector, the chicken markets were steady to higher, with "a lot of excitement building for April," sources said. Chickens were $1.08-1.13 and 98 cents to $1.07/lb. in the eastern and midwestern regions last Thursday, 26.3% more than year ago. Chickens were record high in the East.

The egg markets were down 2 cents to $1.44-1.48 and $1.34-1.36/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 18.7% more than year ago.

However, sources said they expect prices to plunge this week, possibly 15-20 cents. "The Easter push is over, and the first of the month this week is taken care of," one source said.

Volume:85 Issue:13