June 3, 2001
HOG RALLY FIZZLES AND PRODUCER FINANCIAL CONCERNS GROW
anticipated spring hog price rally fizzled. There was a spring
rally, it just started from a much lower level than had been anticipated.
Live hog prices hit bottom in mid-April in the mid-$20s. They
rallied to the mid $30s by mid-May, before collapsing once again
to the higher $20's at the end of May. With two-thirds of the
second quarter now complete, live prices may average about $33
to $34 per hundredweight for the quarter based upon the live equivalent
of 51-52 percent lean hogs.
spring prices are in sharp contrast to the year-previous prices
during the spring of 2001 when prices averaged $52 per hundredweight,
and two years ago when they averaged $50.43. Part of the culprit
is larger than expected second quarter supplies that have surged
to about 6 percent greater versus the same period last year. But
even with the larger supplies, we would have anticipated that
prices would have averaged close to $40.
So we are
left with weak demand to explain the single largest portion of
the dismal spring prices. It's not hard to find culprits starting
with weak pork exports which were down 14 percent in March, record
large production of red meats and poultry, and the restrictions
of U.S. poultry exports to Russia this spring. But the greatest
concern is that retailers have not lowered consumer prices sufficiently
to keep from building large stocks of pork in freezers.
prices set new high monthly records in each month from January
through April of this year (most recent data) while wholesale
prices collapsed. During April and May loins were 22 percent lower;
bellies down 26 percent; and hams off 39 percent from the same
period one-year ago. With record high retail prices and falling
wholesale prices, the retail margins have also been record high
at $1.65 per retail pound during the past January to April, versus
$1.49 for the same period last year. Retailers are quick to point
out that the data series has some limitations, and that retail
prices tend to lag wholesale prices. This hopefully means that
retail prices should be coming down to help move large pork supplies.
result of larger supplies and weak demand is a buildup in pork
storage stocks. As of May 1, pork in cold storage was up 31 percent
over last year at the same time. But also compounding the pork
situation are large amounts of competing meat and poultry in freezers
with beef up 29 percent; and both chicken and turkey up 30 percent.
to say, pork producers are worried about the current depressed
prices and prospects for growing U.S. hog numbers through this
year, and also with expanding Canadian live hog imports. The most
recent Monthly Hogs and Pigs report shows both the March and April
pig crops to be up 1 percent, with the number bred also up about
1 percent. These numbers are consistent with the anticipated spring
farrowing increases reported by producers in the last quarterly
hog imports are expected to reach near 6 million hogs this year,
an increase of 12 percent from 5.3 million in 2001 (USDA). Higher
U.S. production and more imported hogs will push 2002 commercial
pork production to exceed 19.5 billion pounds, breaking the 1999
record of 19.3 billion pounds.
can still occur as retailers reduce prices to consumers and help
move large storage stocks through the marketing system. Continued
recovery in the U.S. economy should also be positive to prices.
But the bitter reality is that the hoped for period of spring
and summer profits before fall losses is largely gone. That outlook
has now been replaced with the potential to have summer prices
in the mid-to-higher $30's before the hammer drops once more this
fall with prices averaging in the lower $30s.
that live hog prices may only average about $35 to $36 for the
year, a level that implies heavy losses for most producers. Thus,
after the years of 2000 and 2001 when hog prices averaged $45.25
per live hundredweight, they will drop much closer to the financially
devastating years of 1998 and 1999 when they averaged only $33.16.
in producers' production plans for 2002 are anticipated. However,
moderate reductions in farrowings could begin by the spring of
2003, with pork supplies beginning to drop in the last-half of
2003. At this point, that looks like a very long time for most
producers to await price relief.
Issued by Chris