WILL THE SPRING HOG PRICE RALLY BE ENOUGH?
producers canít wait to put low hog prices behind them, but the market
this year has been slow to respond. Help should be on the way, although
the spring rally may not be as strong as many had been hoping for.
are weary of losing money. In 2002, prices for 51 percent to 52 percent
lean hogs averaged about $35 for the year and estimated costs of production
were $38.60 per live hundredweight. Losses reached an estimated
$9.60 per hog. The largest losses came in the final quarter of
the year, when they were over $8 per live hundredweight, or $21 per
head. The situation is somewhat better in the first quarter of
2003 with prices expected to average near $36 and losses trimmed to
an estimated $3.50 per hundredweight.
disappointment for prices in the first two months of 2003 stems from
a larger supply of hogs than had been expected based upon USDA inventory
reports. Pork production in the first quarter of the year was
expected to be only slightly higher than during the same period last
year. However, in January and February, pork production has averaged
2.4 percent higher. Some moderation in slaughter rates can be
expected in March, so that the number of hogs coming to market will
be closer to even with year-previous levels. By spring, hog supplies
could be down about 2 percent, based upon last fallís farrowing numbers.
USDAís Monthly Hogs and Pigs report is also providing statistical
support for slaughter supplies to be lower in the spring. The
size of the pig crops in October, November, and December (representing
spring slaughter) was down over 2 percent.
prices should be on the verge of a spring rally that could take live
hog prices from near the mid-$30s at the start of March to the lower-$40s
by the end of May. If supplies drop as much as 2 percent for the
spring quarter, as USDA reports suggest, prices could average near $43.
However, a more realistic objective right now is an average of $40 for
the second quarter.
supplies will be drawn from sows farrowed this winter when producers
said they would reduce numbers by 1 percent. If producers follow
through, summer supplies will be only modestly lower and prices for
the summer quarter would average a bit under $40.
continue to point to a breeding herd that is dropping slowly.
Farrowing intentions for the spring have been estimated at down 3 percent,
and recent monthly reports have shown the number of females bred in
November, December, and January to be down by 2.7 percent, helping
to confirm this magnitude of reduction. If so, pork supplies could
continue to drop modestly into the final quarter of 2003, with prices
averaging in the mid-to-higher $30s.
best news for now is that losses are likely to nearly be over as the
spring price rally sets in. However, prices cannot be expected
to be high enough through the year to provide much more than a breakeven
level on average.
costs may drop from near $40 per hundredweight at the start of 2003
to closer to $38 with lower corn prices, assuming near normal corn yields
this fall. Hog prices, on the other hand, are expected to average
about $39 for the year. After the large losses experienced last
year, it appears that a breakeven year in 2003 will not enable producers
to recover from those losses.
will the spring price rally be enough? It will be enough to get back
into a profitable environment, but a breakeven year in 2003 will be
of limited value in helping producers climb out of the financial hole
they find themselves in from losses experienced over the last 12 months.