December 3, 2001
DID 9-11 CUT FALL HOG PRICES?
One of the continuing question this
fall has been, "How have the events and aftermath of 9-11
affected the hog industry? The USDA's September Quarterly Hogs
and Pigs survey was completed around September 1, a few days prior
to the fateful terrorists acts. Have producers' attitudes changed?
Of course, the way hog producers view their businesses have been
altered somewhat, and the latest data from the USDA's Monthly
Hogs and Pigs survey is showing that expansion plans will likely
be cut somewhat from the pre-9-11 position.
In September, farrowings for the
fall quarter were expected to be up by 1.4 percent. Now, with
data available for the first two months of the quarter, farrowings
are up just .4 percent, perhaps indicating some moderate reduction
from September intentions. In a similar fashion, farrowing intentions
for the winter quarter were up 3.2 percent in the September survey.
Data gleaned from the monthly report are showing females bred
to farrow in the first quarter up only 1.5 percent, again pointing
to a somewhat slower build-up than had been anticipated in September.
Given the increased uncertainty
as a result of 9-11 events, and the lower than expected fall prices,
some reduction in the rate of herd build-up would seem logical.
But what was the source of the depressed fall prices? At the start
of September, hog prices were expected to average between $42
and $43 for the final quarter of 2001. This price is the live
equivalent of the national base lean price for 51-52 percent lean
animals. At the start of the last month of the quarter, it now
looks like prices may average between $37 and $38. With prices
about $5 per live hundredweight lower than expected, it is appropriate
to seek the reasons why.
Most of the answer seems to lie
in three categories. The first is larger supplies than had been
expected, the second is the reduction in exports to Asia, and
the remainder falls to a category best described as the weakened
economy and consumption changes after 9-11. Examining how each
has reduced prices will provide some insight into winter hog price
At the start of the fall, pork supplies
were expected to be unchanged from the supplies of the last quarter
of 2000. With two of the three months now complete, last quarter
supplies are about two percent higher. Both the number of animals
slaughtered and weights are about one percent higher. Higher weights
are explained by producers holding hogs somewhat longer when prices
dropped below expectations. Larger pork supplies explain about
$2 of the lower prices.
Exports to Asia began to fall when
the Japanese pork import safeguard was triggered in August. Pork
exports to Japan in August and September dropped by one-third
compared to the average of the previous three months. This drop
accounts for a reduction of about $1.50 per live hundredweight
for U.S. hog prices.
This leaves the impact of 9-11 and
its aftermath contributing an additional $1.50 to $2.00 to lower
prices. Much of this impact seems to actually come from the beef
sector. With the recognition of slow growing U.S. and world economies,
as well as general uncertainty, beef demand was reduced. Travel,
convention, and vacation related beef sales were also negatively
impacted, dropping the use of high value beef cuts in that industry
by about 11 percent in October. In addition, beef exports to Japan
were cut with the discovery of Mad Cow disease there. So, most
of the lower live hog prices seem to be related to the increased
competition from beef when higher value cuts had to be moved through
U.S. grocery stores rather than into the export and restaurant
What do these factors mean for prices
into 2002? First, pork supplies are expected to remain about unchanged
in the first quarter, before rising about two percent in the spring
and summer. Current indications are that winter farrowings may
be up only one percent compared to the expectation of three percent,
keeping summer 2002 supplies moderate. Second, the Japanese import
safeguard remains in place through the end of March, but larger
export volumes can be expected after that. Finally, beef demand
appears to be slowly recovering in the U.S., but may not totally
recover until the last-half of 2002 when economic recovery may
be well underway.
The year of 2002 still appears promising
for pork producers. Look for live hog prices to recover into the
low $40s in the winter. Springtime should bring an additional
price increase, with prices back to the mid to higher $40s. Summer
prices may be a couple of dollars lower. Prices in the last quarter
of 2002 are expected to return to the very high $30s. The best
guess now is that 2002 prices will average around $43, compared
to $46 this year.
The trauma of 9-11 has contributed
to depressed hog prices this fall. The positive side for producers
is that it has also likely cut expansion plans somewhat, which
will help maintain profitable prices for a longer period into
Issued by Chris