Are lower hog prices justified by supplies?

Steve Meyer

March 2, 2015

4 Min Read
Are lower hog prices justified by supplies?

First quarter hog slaughter subsided a bit last week, dropping by 0.8% from the week before to 2.262 million head. That figure was still 5.6% larger than last year at a time when the December Hogs and Pigs report indicated that hog supplies should be about 0.5% higher. The average estimated live weight for all hogs dropped another 2 pounds to 284 while the all-hogs estimated carcass weight remained steady at 2015, 1% higher than one year ago. The average weights of producer-sold barrows and gilts, which I believe is a good measure of staying current or efforts to change currentness increase 0.32 pounds to 213.3 last week. That is the first increase of this key figure since Jan. 9, and it now stands 3.46 pounds lower than in the first week of the year.

One reason that marketings and weight declines slowed a bit is that cash markets had another positive week. The gain was only $0.43 per hundredweight carcass weight to $67 for the producer-sold average across all buying methods. That follows a gain of $1.30 last week. The average net negotiated price increased slightly last week as well, gaining $0.28 per cwt. to $60.99.

Are these lower prices justified by supplies? The answer would typically be “Pretty much, but not completely.” We expect hog prices to move two to three times, year-on-year, as much as supplies change year-on-year but in the opposite direction. The past have seen slaughter 4.5% to 8% higher than last year. Though declining, weights that have been higher than last year have driven production up by 5.4% to 9% over that same period. Negotiated producer-sold hogs have been roughly 20% to 40% lower while the cutout has been down 12% to 30%. The hog price flexibility (ratio of price change to supply change) has been roughly 4 while the cutout flexibility has been about 3. While a bit large, neither of those are far out of line, suggesting that demand has held up pretty well.

I still think the biggest question facing this market is whether hog numbers return to expected levels or stay at 5% or so above those levels through April. If the former happens, we can write this surge off to beating lower prices and freeing up finishing space with quicker marketings. If the latter, we conclude the June-to-August pig crop in the September Hogs and Pigs report was woefully low and then probably call the December report into question. I’d rather have the former for a lot of reasons but I don’t think we can draw a conclusion yet.

Explanation ahead of Pork Forum
Pork producers will meet this week in San Antonio to make key recommendations and decisions for the National Pork Board and National Pork Producers Council. I realize most readers know exactly what those two organizations do but I’m always surprised by the number of people who do not. So …

  • The NPB is a quasi-governmental body created by the Pork Act that administers the national legislated (i.e. mandatory) checkoff. Board candidates are nominated by the producer delegate body at the annual meeting (i.e. this week!). The actual board members are appointed by the secretary of agriculture from that list of nominees. He/she usually – but not always – follows the delegates’ rankings. The delegate body’s only other duties are to set the checkoff rate (presently 0.4% or $0.40 per $100 of value with no change proposed) and the method for computing the amount of the mandatory checkoff funds that gets returned to state organizations for programming covered by the Pork Act. The delegate body also makes “advisements” to the board regarding matters of checkoff program strategy and funding. That Pork Act limits the board to using producer checkoff funds for promotion, research and education. Mandatory checkoff funds cannot be used to influence the U.S. government. They can be used to influence trade policies of other governments since doing so is a key component of international marketing of U.S. pork. The NPB is housed in Des Moines, Iowa.

  • The NPPC is the industry’s public policy voice in Washington, D.C., and supports the public policy work of all state organizations. It is supported by individual contributions and a voluntary checkoff of 0.1% ($0.10 per $100 of hog value). The NPPC has a separate delegate body that sets policy by acting on resolutions initiated by county and state pork producer associations and the NPPC’s Board of Directors. The NPPC also includes packers, processors and allied industry members who support the organization financially and have a voice in the policy making process. The NPPC has offices in Washington, D.C., and Des Moines, Iowa.

Both organizations’ annual meetings are held each March as part of the National Pork Industry Forum. Both commence Friday morning and will adjourn on Saturday afternoon.

Highlights will include the naming long-time NPB vice president Jim Meimann as the recipient of the Board’s Distinguished Service Award and the induction of former NPPC and Meat Export Federation President Jon Caspers into the Pork Industry Hall of Fame. Congratulations to these two most-deserving recipients and dear friends of so many.

About the Author(s)

Steve Meyer Livestock Division

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