IN DESPERATE NEED OF A SPRING PRICE RALLY
have been depressed since September 11, 2001, when live hog prices
were at $45 per hundredweight. Prices had a strong run, averaging
over $51 in the six months prior to that fateful day. Today is
a different story. Hog prices are mired at their lowest levels
since 1999 and have averaged a bare breakeven price of $38 in
the six months after September 11.
prices are rooted in both larger than expected supplies and in
weak demand. On September 11th, supplies for the last quarter
of 2001 were expected to be unchanged, a stark contrast to the
nearly 5 percent larger supplies that eventually came to market.
Prices naturally were lower than expected, but the extra supplies
explained most of the decrease. The first quarter of 2002 provided
a different story. Supplies were close to expectations, yet prices
fell $3 below the expected level, indicating a greater likelihood
of weak demand.
The low prices
of this past winter cast a long shadow on the anxiously anticipated
spring and summer hog price rally. Futures prices collapsed when
the spring rally could not get underway. The April lean futures
contract traded near $63 in early February. By the first week
of April, hope had faded to despair, and the price of that contract
dropped below $46. Pork cold storage stocks have increased to
the highest level since 1999, a further indicator that processors
are having some difficulty moving pork products to consumers.
still hope for the spring rally. In fact, it normally does not
get underway until after the first week of April. A glance at
historical seasonal price patterns show that the price tends to
move up by more than $6 per live hundredweight between the first
week of April and the end of May. In fact, in about 30 percent
of the years, live prices have moved up by $10 or more to reach
the late spring and summer highs. The current low prices seem
to give higher odds of this being one of those years.
USDA Hogs and Pigs report provided no supply surprises. The market
herd inventory shows that supplies will be up about 2 percent
this spring and up about 3 percent in the summer. Weights will
add roughly a percent, so pork production will be up 3 percent
in the spring and 4 percent in the summer. While these sound like
relatively large increases, supplies were small in the base period
that these are being compared to. Fall and winter supplies will
be up about 2 percent, based upon producers' intentions to farrow
1 percent more pigs this spring and summer.
So the big
question remains, can hog prices get a rally started? The answer
is undoubtedly, yes, but the related questions are from what level
and by how much will they rally? Live hog prices may still be
able to average around $44 for the spring quarter. This, of course,
means that prices will begin to move upward quickly. Summer prices
are expected to be $1 to $2 lower, averaging in the $42 to $44
range. If so, there will be a return to profitability for the
next six months and producers will want to use these positive
cash flows to prepare for another price crunch this fall and winter
when prices could once again be pushed into the mid-to-lower $30s.
breeding herd has been stable since 1999. Of course, there was
a major drop in the herd in 1999 in response to devastatingly
low prices. The growth in the North American breeding herd is
occurring in Canada and to some extent in Mexico. As an example,
since 1995, U.S. pork production has grown by 7 percent, Mexican
production is up 14 percent, and Canadian production is up 38
percent. In 2001, the U.S. imported 5.3 million hogs from Canada,
totaling 5.4 percent of U.S. production. In 2002, USDA expects
the number of hogs imported to grow to about 5.8 million.
past year, the breeding herd has been up in Nebraska (+8 percent)
and Illinois (+2 percent); unchanged in North Carolina and Iowa;
and down in Indiana (-6 percent), Minnesota (-3 percent), and
Missouri (-3 percent).
a period of extreme caution for hog producers. Much lower than
expected prices since September 11th have been discouraging, as
have increasing supplies of live hog imports from Canada. The
spring rally should soon be underway, with a return to some profits.
However, what many had hoped would be six months of favorable
profits this spring and summer, now seems to be one of just getting
back into the black before the next loss period comes next fall
Issued by Chris