Here’s the good news: a shrinking North American sow herd will mean
smaller supplies and better hog prices a year from now.
Here’s the bad news: all the extra sows and gilts heading to slaughter
today are depressing prices, boosting meat stocks and could overwhelm
packer capacity between October and December, causing a price crash
similar to 1998.
Hog market analysts are anxiously watching the size of North American
herds and the number of pigs being sent for slaughter, hoping the
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USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
slaughter numbers manage to stay below packer capacity.
“I’m still very worried that we’ve got too many hogs coming,” said
University of Missouri economist Ron Plain.
Packer capacity tested
The United States Department of Agriculture is predicting a one percent
increase in hog slaughter in the fourth quarter of 2002 compared to
2001. Plain said that increase can be absorbed by the packers who can
deal with anything up to a five percent surge.
The expected one percent increase could be boosted by sharply higher
sow and gilt sales, but Plain said their numbers are small compared to
normal market hogs, and would only raise the slaughter rate by 0.5
percent.
Plain worries that “the USDA missed some hogs” in its recent hog stocks
report. He thinks it’s possible that fourth quarter hog sales will
increase five percent, a rate that would exceed packer capacity.
The long-term outlook is much better. The sow herd will be smaller and
fewer hogs will be coming to market.
Jim Long, president of Baconmaker Genetics who offers pork market
commentaries on his Farms.com website, said this year’s sow liquidation
in the American herd is about 13 percent above last year’s. And the
trend is likely to continue.
Long said few sow operations are being built in the U.S., so there
probably won’t be enough gilt placements to offset the sow slaughter.
He also believes that gilt placements are lagging because bringing
gilts into sow production shows confidence in the future, confidence
that is slipping as low prices and escalating corn prices bite further
into profitability.
Manitoba Agriculture market analyst Janet Honey said increasing feed
costs could also lead to lighter weight hogs, which would also be good
for prices. Heavyweight hogs and cattle over the past year have helped
create a supply glut that has weighed heavily on meat prices.
With feed relatively cheap in the U.S. during the past year, it made
sense for producers to feed longer and produce heavier animals.
But with feed becoming much more expensive, farmers will not hang on as
long, Honey expects. There won’t be any advantage to adding those last
few pounds to each market hog.
Increasing feed costs are going to hurt most producers, Honey said.
Some may have locked in feed prices and locked in pig prices for the
autumn, so they won’t experience the same problem, she said.
Honey expects Manitoba fourth quarter index 100 hog prices, including
all bonuses and premiums, to range from $125 to $132.
That’s below the cost of production for almost all operations, but
bearable.
Honey acknowledges there’s a chance pig sales will run into the packer
capacity ceiling and crash, but said she doesn’t think that’s likely.
Better times ahead
Producers in North America are likely to market about 500,000 fewer
hogs in the fourth quarter of 2002 compared to 1998, and packer
capacity has not shrunk.
So long as there is not a plant shutdown, as occurred in the 1998
Quality Meats strike in Toronto, producers should just eke their way
through and get on to better times in 2003.
“It doesn’t look as though this fall will be as bad as everybody
expects.”
