It appears pig producers have avoided a price crash like the one in
1998.
“We aren’t going to face a disaster like we were worried about,” said
University of Missouri hog market analyst Ron Plain, with obvious
relief.
“The short-term outlook is a heck of a lot better than it was a few
months ago.”
Hog prices fell in September and have stayed below most producers’
profit levels, but the price slide is nowhere near as bad as three
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years ago when prices continued to fall to the end of the year.
In 1998, an unexpectedly large autumn surge in slaughter hogs created a
glut that packers couldn’t handle, and packers bid down the price of
slaughter hogs.
This year, producers reduced farrowing in the spring, so the expected
glut of hogs is less than Plain’s and other analysts’ worst-case
scenario of a few months ago.
Plain thinks repeated warnings about a possible reprise of the 1998
price collapse caused producers to act early to avoid losses. They cut
slaughter hog inventories by reducing farrowings, and marketed hogs
earlier.
“That’s the only explanation I can come up with,” said Plain.
“We’d like to think they listened to us and heeded our warnings.”
The American sow herd has been declining since spring and slaughter
weights are lower than they were a year ago. The result is that prices
are higher than expected, and by mid-December, prices should be rising,
Plain said.
Anticipating problems and reacting before they occur is common sense,
but Plain said the hog market has generally not operated that way.
Until now, the best predictor of U.S. pig herd size was past
profitability. If producers had been making money, the pig herd would
grow. If they had been losing money, the herd would shrink.
Plain said traditionally there has been a 15 month lag between present
prices and changes in the pig herd, so high prices at one point would
tend to produce a much bigger herd 15 months later, causing prices to
drop.
Fifteen months after an unprofitable period the pig herd would shrink,
causing higher prices.
Plain thinks the only explanation for this year’s situation is
producers looking to the future, not the past.
“Based on a normal response we wouldn’t have cut back nearly as soon as
we have.”
The decline in the U.S. sow herd was not followed in Canada, especially
in Manitoba where sow numbers grew by 9.3 percent, or 28,000 animals,
from 2001.
Because Canadian prices are based on the U.S. market, the surge hasn’t
hurt prices, and Manitoba Agriculture meat market analyst Janet Honey
said producers should soon see a turnaround.
“It looks like the worst is over,” said Honey.
The U.S. market is now picking up steam, and if slaughter numbers
decline as expected into December, prices should not drop lower.
Honey said profitable prices may be reached by February or March.
She said that in December 1998, hog prices dropped to $62 per 100
kilograms dressed weight, but in October 2002 they were more than
double that, at $129.83.
Feed grain prices were higher this year compared to 1998, Honey said,
so farmers were still squeezed, but the situation was not as dire.
“Everyone was worried a year ahead, so they were prepared,” said Honey.
