LIVESTOCK MARKETS: More pork, higher hog prices ahead?

 In Industry News

Various factors will determine where 2017 prices settle.

Krissa Welshans | Jan 05, 2017

The most recent U.S. Department of Agriculture (USDA) “Hogs and Pigs” report indicated pork supplies in 2017 would likely be larger than pre-report expectations.

Purdue University livestock economist Chris Hurt said slaughter numbers have run high all fall and USDA revised upward the size of the spring 2016 pig crop by 2.5% to account for the heavier runs. In a similar fashion, the December survey also found more market hogs. The number of pigs that weighed less than 180 pounds was 4% percent larger than the inventory of a year ago and 2% percent larger than pre-report trade estimates. These will be the market hogs arriving at processing plants from January to May 2017, Hurt noted.

A similar story unfolded for the breeding herd, which was 1.5% higher and 1% more than pre-report estimates. Farrowing intentions were also above expectations. Winter farrowing intentions were 1.4% higher and spring farrowing intentions were 1% higher. Hurt said the expansion of the breeding herd has tended to follow the record corn yields, with the Illinois, Missouri, and North Dakota breeding herds up 10% and the South Dakota up 9%.

According to Hurt, the number of pigs per litter continued to march higher in 2016 with new records in each quarter. The last quarter of 2016 attained the highest level ever at 10.63 pigs per litter. For 2016, the new annual record was 10.5 pigs. Hurt said the average rate of annual increase over the past ten years has been 1.5%.

Given these numbers, Hurt said the industry will increase pork output by about 3% in 2017 to 25.7 billion pounds, a 12% increase since 2014 when PED reduced production and contributed to record high hog prices. He forecasted pork production will rise by 2% the first-half of 2017 and by about 4% in the last-half.

“Hog prices were extremely depressed in the final quarter of 2016 when live prices averaged about $37/cwt. That was the lowest quarterly price since 2003,” said Hurt, adding that the lowest prices were in mid-November, touching the extremely low $30s. “Recovery came quickly with prices rising to the lower $40s by the end of the year. For all of 2016 live hog prices averaged about $46.”

As for prices in 2017, Hurt said 3% higher production might mean annual prices will be lower. However, he said there are additional items to consider.

First, retail prices did drop in 2016, but there is opportunity for those prices to come down more. “Lower retail prices will stimulate the quantity of pork that consumers purchase.”

Second, Hurt said USDA expects exports to expand by 5%, which will move more of the increased production to foreign customers.

Third, with the addition of new processing capacity, the farm-to-wholesale margins are expected to drop, Hurt said. “Lower margins at the processing stage may contribute to stronger bids to hog producers.”

Live hog prices are expected to be about $48/cwt. in 2017, a $2 increase from 2016. Prices by quarter are expected to average $45/cwt. in the first quarter, the very-low $50s in the second and the third quarters, and then $43 in the final quarter of 2017. A range of $2 higher or lower would be reasonable for price projections, Hurt added.

Costs of production are expected to be around $50 on a live weight basis in both 2016 and 2017 based on current feed price expectations. Hurt pointed out that this means the industry operated at an estimated loss of about $12 per head in 2016 and is expected to have losses that average about $6 per head in 2017.

“Losses in the first quarter of 2017 are expected to be about $13 dollars per head. Modest profits may return in the second and third quarters, with a return to the largest losses of the year in the final quarter.”

Because the 2017 outlook is for weak returns, Hurt said it is important to keep further expansion to a minimum. “This will be difficult with new processing capacity coming in 2017 as those plants will want to stimulate some added production to fill their lines.”

Pork exports to China will particularly bear watching in 2017, Hurt said. Last year, exports to China nearly doubled growing to near 16% of total exports.

Trade positions of the Trump administration will also be of deep interest to the pork industry in 2017. Mexico became the number one destination for U.S. pork in 2015 and 2016, which Hurt said means trade relations with Mexico will need to be watched carefully for potential impacts on the hog market.

“Remember that a breeding herd that stays the same size will still enable a 1-2% expansion of pork production due to more pigs per litter and higher market weights. A 2% production growth rate is probably close to what is sustainable with modest U.S. population growth and some growth in exports.”

Market recap

The December fed cattle future market was mostly lower this week after a long holiday weekend. Nearby contracts closed lower Tuesday at $114.875/cwt., posted gains Wednesday, but closed lower again Thursday at $115.075/cwt.

January feeder cattle futures were lower this week. Nearby contracts closed lower Tuesday and Thursday at $130.20/cwt. and $128.25/cwt.

For the beef cutouts this week, Choice and Select were lower at $201.52/cwt. and $193.39/cwt., respectively.

February lean hog futures started the week lower but climbed through the week. Nearby contracts closed lower Tuesday at $63.50/cwt. but closed higher Thursday at $64.875/cwt.

Pork cutout values were higher this week. The wholesale pork cutout was higher at $79.57/cwt. Loins were higher at $80.75/cwt. Hams and bellies were also higher at $62.02/cwt. and $118.16/cwt.

Hogs delivered to the western Corn Belt were higher this week, closing at $54.08/cwt. on Thursday.

The U.S. Department of Agriculture reported the Eastern Region whole broiler/fryer weighted average price at 85.54 cents/lb. on Dec. 30.

According to USDA, egg prices have been steady, with a lower to sharply lower undertone. Offerings and supplies have been moderate to heavy. Demand has been mostly light to moderate.

Large eggs delivered to the Northeast were unchanged at $1.10-1.14/doz. Prices in the Southeast and Midwest were higher at $1.21-1.24/doz. and $1.10-1.13/doz., respectively. Large eggs delivered to California were unchanged at $1.66/doz.

For turkeys, USDA said the market was steady to weak, with light to moderate offerings. Demand has been light. Prices were lower, at $1.00-1.02/lb. for both hens and toms.

Recent Posts

Start typing and press Enter to search