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Cash hog prices chased higher by packers

Current futures prices for hogs and corn indicate 2018 hog profitability will exceed that of 2017.

Last week was a good one for hog prices. Friday afternoon’s negotiated average base price averaged $64.01 per hundredweight, up $5.44 from the previous Friday. Why the big jump? It appears some packers came up short on having enough hogs for their weekly slaughter plans and had to chase the price higher to get them. The USDA’s daily estimate of hog slaughter was revised lower on both Tuesday and Wednesday. Hog slaughter for the week totaled 2.45 million head. Although up 2.4% from the same week last year, hog slaughter was the smallest for any non-holiday week since the week of Nov. 4. Saturday slaughter totaled 181,000 head.

Since early December hog slaughter has been up 4.5%. That compares to a 2.3% increase implied by the December Hogs and Pigs Report.

 

The pork cutout value rose only slightly last week. USDA’s Friday afternoon report pegged the cutout at $79.81 per hundredweight. That was up only $0.74 from the previous Friday. The hog price as a percent of the cutout value is above the average of recent weeks and well above that of a year ago.

Ron Plain

 

The February lean hog futures contract also rose slightly last week closing at $71.575 on Friday, up 15 cents from seven days earlier. The modest increases in futures and cutout prices make us skeptical of another jump in cash hog prices this week.

Hog weights are still well above the year-ago level. For the week ending Jan. 5, the Iowa-Minnesota live slaughter weight averaged 285.5 pounds, up 0.5 pound from the week before and up 3.0 pounds from a year ago.

Last Monday’s international trade report said November pork imports were up 0.5% compared to last year and November pork exports were up 8.2%. As a percent of production, November pork exports equaled 23.9%, the highest for any month since May. Imports equaled 4.3% of November pork production, the highest since August. Through November, 2017 pork imports were up 2.3% year-over-year and exports were up 7.9%.

 

Pork exports are on course for a record year. If December 2017 exports are greater than 53% of the previous December, then 2017 U.S. pork exports will break the record set in 2012.

The growth in exports is largely due to increased shipments to Mexico with support from South Korea and Columbia. The only big decline is in pork exports to China and Hong Kong.

Despite a 51 million pound decline in imports from Canada, pork imports are up in 2017, largely due to a big jump (56 million pounds) in imports from Poland.

Friday’s crop production report lowered 2017 corn acres harvested by 400,000 but raised the yield by 1.2 bushels to a record 176.6 bushels per acre. Last year’s corn production is pegged at 14.604 billion bushels, the second highest ever. USDA now predicts corn will average between $2.95 and $3.55 per bushel during the current marketing year. That is the lowest price for any crop year since 2006-07.

Soybean production, 4.392 billion bushels last year, was less than December’s estimate but is still a new record.

Friday’s World Agriculture Supply and Demand Estimates report increased USDA’s estimate of 2017 pork production as well as their forecast of 2018 production. They now say pork production was up 2.6% in 2017 and are forecasting another 5.4% increase this year. Total red meat and poultry production is forecast to be 3.8% higher this year than last.

Per capita pork consumption in 2018 is predicted to be 52.0 pounds, up 1.8 pounds from last year, and the most since 1999. Continued strong domestic and export demand will be needed to prevent a drop in 2018 pork prices.

The average live price for 51-52% lean hogs in 2016 was $46.16 per hundredweight in 2016. Despite an increase in hog slaughter, last year’s average price rose to $50.48 per hundredweight. The USDA is predicting hogs will average between $46 per hundredweight and $49 per hundredweight on a live weight basis in 2018. The futures market is considerably more optimistic than the USDA is about hog prices in the year ahead.

Friday’s meat price report says retail pork prices averaged $3.74 per pound in December, down 4.6 cents from November, but up 15.7 cents from December 2016. For all of 2017 retail pork prices averaged $3.784, up 3.7 cents from 2016, but 6.9 cents lower than in 2015.

The farm-retail pork price spread narrowed by 1 cent in December with a tighter retail spread but a wider packer spread.

Fifty-one percent to 52% lean hogs average $44.47 per hundredweight in December which was down $1.99 from November, but up $5.02 year-over-year.

The Iowa State University calculations on hog profitability say the typical Iowa farrow-to-finish operation lost $4.42 per head for hogs marketed in December. That was the fourth consecutive month with red ink. Because of strong hog prices during the summer, the average for all of 2017 was a profit of $11.95 per head.

 

ISU’s estimated cost of production for 2017 was $44.42 per hundredweight of live weight. That was $1.27 lower than in 2016 and the lowest of any year since 2006. If corn prices rally from recent lows, then hog cost of production will also rise.

 

Current futures prices for hogs and corn indicate 2018 hog profitability will exceed that of 2017.

 

There are no major National Agricultural Statistics Service reports for the pork industry scheduled for release this week.

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