American Hog News USDA

[mikey]

Friday, July 30, 2010
CME: Sharp Rise in Lean Hog Futures
US - Lean hog futures rose sharply on Thursday on strong gains in cutout values and optimism that a combination of tighter supplies and resurgent demand will sustain hog prices for the remainder of the year, accordind to Steve Meyer and Len Steiner.



The nearby August contract gained as much as 147 points while the October and December futures hit all time contract highs. The charts below provide some indication as to what is underpinning the upward move in hog futures. The pork cutout on Thursday closed at $89.4 /cwt., $3.87/cwt or 5 per cent higher than the week before and $30.3/cwt or 51 per cent higher than during the same time a year ago. The increase in cutout and hog prices is seasonal but it has been further amplified by a much tighter supply situation.

The spike in prices is reminiscent of 2008 when cutout and prices for individual pork items hit all time record highs. Daily prices since mid July have followed almost exactly the same path as a year ago (see chart) and the market seems to think that the highs for pork prices may still be ahead of us. The seasonal increase in prices is being supported by tighter hog supplies.


The chart below shows a running seven day total of US daily hog slaughter. On Thursday, the running seven day total stood at 1.949 million head, 7.3 per cent lower than the comparable time frame a year ago. We currently estimate hog slaughter on Friday will be around 400,000 head and Saturday at some 50,000 head. If those estimates are correct, that would produce a final hog slaughter level for the week of 2.015 million, 4.2 per cent lower than a year ago. Even more critical for the market, however, is what happens with hog slaughter and hog weights in August.


As the second chart shows, hog slaughter in 2008 and 2009 rose by more than 100,000 head per week between the end of July and the end of August. Our current expectation is for slaughter to continue to track 2.5 per cent to 3 per cent below year ago levels for the next few weeks but a larger shortfall will clearly impact a market that already seems to be stretched. The latest cold storage data showed very tight supplies of bellies (-54 per cent vs. 2009), trimmings (-48.6 per cent vs. 2009) and a number of other items.

Belly prices have escalated sharply in recent days as end users appear to have underestimated the market and likely liquidated inventories too early. Belly demand tends to taper off at the end of August however. As we move into the fall, hams will become an even more important component and will need to carry a larger portion of the carcass. Ham prices are currently trading at some very lofty levels and it remains to be seen how retailers and foodservice operators respond to the even higher ham prices required to sustain the hog and carcass prices the board indicates.

[mikey]

Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME closed down on Monday. AUG’10LH futures finished at $81.200/cwt; down $0.825/cwt and $5.700/cwt lower than this time last week. The FEB’11LH contract closed down $0.725/cwt at $74.300/cwt and $2.480/cwt lower than last Monday. Wholesale prices declined for the fourth day in a row with USDA putting the wholesale pork price at $90.05; down $0.58/cwt from the previous and $0.60 lower than this time last week. Cash hogs on Monday were off $1-1.50/cwt. Chart selling and some spreading into October 2010 futures from August and September futures pressured prices. The latest CME lean hog index was placed at 85.82/lb; up 0.21/lb and 1.88/lb over last report. According to HedgersEdge.com, the average packer margin was raised $0.75/head to a positive $11.50/hd based on the average buy of $60.47/cwt vs. the average breakeven of $64.76/cwt.

CORN futures on the Chicago Board of Trade (CBOT) closed down Monday. The SEPT’10 contract closed at $4.030/bu; off 2.0 ¢ /bu but 13.0 ¢ /bu higher than last report. DEC’10 corn futures closed off 2.0 ¢ /bu at $4.180/bu but 14.0 ¢ /bu higher than last Monday. The DEC’11 contract closed at $4.390/bu; down 1.5 ¢ /bu but 8.0 ¢ /bu higher than a week ago. Spillover weakness from profit taking in the wheat market was the primary influencer of lower corn prices on Monday. Good corn-crop weather also contributed pressure to prices. USDA late Monday put the US corn-crop good-to-excellent rating at 71 per cent - the same as a week ago. Several floor sources said traders expected a lower rating due to heat stress and more than enough rain. Little fresh fundamental news was available on Monday. Weather is now the primary fundamental market mover. Traders are looking forward to the next USDA World Agriculture Supply Demand Estimate (WASDE) report due out Thursday, August 12. It will most likely take a bullish USDA report to keep corn from sliding further. Funds sold almost 7,000 lots. USDA put corn-inspectedfor- export at 41.986 mi bu vs. expectations for 38-40 mi bu. It wouldn’t be a bad idea to get 100 per cent of the 2010 crop sold. Last week recommendations were made to price up to 30 per centof the 2011 crop as well. It would not be imprudent to price another 10 per cent taking you to 40 per cent sold.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday with the exception of the August ’10 and September ’10 contracts as traders unwound spreads ahead of Thursday’s WASDE report. The AUG’10 soybean contract closed at $10.484/bu; off 10.5 ¢ /bu and 5.0 ¢ /bu lower than a week ago. SEP’10 soybean futures finished down 4.5 ¢ /bu at $10.344/bu but 15.0 ¢ /bu higher than last report. NOV’10 futures closed at $10.350/bu, up 1.5 ¢ /bu and 25.0 ¢ /bu higher than a week ago. NOV’11 soybean futures closed up 3.5 ¢ /bu at $10.214/bu; 24.0 ¢ /bu over last report. New crop futures were supported by strong demand from China. USDA put soybeans-inspected-for-export at 7.131 mi bu vs. expectations for 6-9 mi bu. China bought 280,000 tonnes (10.29 mi bu) from US shippers for delivery in ‘10/’11. Soybean shippers in Argentina reported that workers there plan on continuing their strike over wages for another 48 hours. According to USDA the US soybean crop in good-to-excellent condition is unchanged from last week at 66 per cent. Spreading in soyoil and soymeal, as well as gains in crude oil prices provided some support. Reports showed funds buying 3,000 lots. Cash soybean prices and nearby futures were pressured by brisk farmer selling. Argentinean markets were lack-luster on slow demand. Soybean news regarding Brazil’s 2010/2011 crop show Brazilian producers are expecting to increase production to a record 24 mi hectares (9.7 mi acres). Last year’s crop was grown on 23.5 mi hectares (9.47 mi acres). Brazilian agriculture officials say the increase is not expected from “new” ground but from lower corn plantings. No yield estimates were readily available for Brazil. It would be a good idea to get 90 per cent of the 2010 crop priced and up to 20 per cent of the 2011 crop priced if you haven’t already.

WHEAT futures in Chicago (CBOT) were mixed on Monday with deferreds showing gains while nearby’s posting declines. The SEPT’10 wheat contract closed at $7.124/bu; off 13.25 ¢ /bu but 73.0 ¢ /bu higher than this time last week. JULY’11 futures finished up 11.5 ¢ /bu at $7.144/bu but 25.0 +¢ /bu cents lower than last report. Bear spreading and position squaring by funds ahead of the Thursday WASDE report pressured nearby’s. The opportunity to take profits on positions overrode production concerns from Russia and nearby wheat producing countries. Russian Prime Minister, Vladimir Putin said on Monday there would not be a quick lifting of the grain export ban. Last Friday wheat futures volume registered an all-time high of 316,053 lots vs. the old record of 263,120 contracts. Open interest did not change as much as expected indicating fund activity amid a transfer of ownership. That is, those who were “long” wheat became sellers and vice versa. Egypt bought 240,000 tonnes (8.82 mi bu). USDA put wheat-inspected-for-export at 14.248 mi bu vs. expectations for 10-12 mi bu. If you haven’t priced at least 80 per cent of the 2011 wheat crop yet it still is a very good idea to do so.

[mikey]

US and Canadian Hog Inventory Down Three Per Cent
US - This publication is a result of a joint effort by Statistics Canada and the USDA's National Agricultural Statistics Service (NASS) to release the total inventories of hogs, breeding, market hogs, sows farrowed, and pig crop for both countries within one publication.

 

US and Canadian inventory of all hogs and pigs for June 2010 was 76.2 million head. This was down 3 per cent from June 2009 and down 5 per cent from June 2008. The breeding inventory, at 7.09 million head, was down 3 per cent from a year ago but up slightly from last quarter. Market hog inventory, at 69.1 million head, was down 3 per cent from last year but up 1 per cent from last quarter. The pig crop, at 35.2 million head, was down 3 per cent from 2009 and down 3 per cent from 2008. Sows farrowed during this period totaled 3.58 million head, down 5 per cent from last year and down 7 per cent from 2008.

US inventory of all hogs and pigs on 1 June 2010 was 64.4 million head. This was down 4 per cent from 1 June 2009 but up 1 per cent from 1 March 2010. The breeding inventory, at 5.79 million head, was down 3 per cent from last year but up slightly from the previous quarter. Market hog inventory, at 58.6 million head, was down 4 per cent from last year but up 1 per cent from last quarter. The pig crop, at 28.2 million head, was down 3 per cent from 2009 and down 2 per cent from 2008. Sows farrowed during this period totaled 2.87 million head, down 5 per cent from last year and down 6 per cent from 2008.

Canadian inventory of all hogs and pigs on 1 July 2010 was 11.8 million head. This was down 2 per cent from 1 July 2009 and down 9 per cent from 1 July 2008. The breeding inventory, at 1.31 million head, was down 5 per cent from last year but up slightly from last quarter. Market hog inventory, at 10.5 million head, was down 2 per cent from last year but up 1 per cent from last quarter. The pig crop, at 7.0 million head, was down 4 per cent from 2009 and down 10 per cent from 2008. Sows farrowed during this period totaled 705,000 head, down 4 per cent from last year and down 11 per cent from 2008.

[mikey]

Pork Now Part of Mexico's Trade Retaliation List
US - The National Pork Producers Council yesterday expressed its strong disappointment with the US and Mexican governments’ actions related to allowing Mexican trucks into the United States.



Mexico yesterday added pork to the list of US products against which it is retaliating for the failure of the United States to live up to its obligations under the North American Free Trade Agreement to let Mexican trucks haul goods into the United States.

“Mexico’s retaliation against US pork will have negative economic consequences for America’s pork producers,” said NPPC President Sam Carney, a producer from Adair, Iowa. “We are extremely disappointed that our top volume export market has taken this action, but we’re more disappointed that the United States is not living up to its trade obligations.


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"The retaliation puts thousands of agricultural jobs at risk, including, now, pork industry jobs, and thousands of manufacturing jobs at risk." 
Sam Carney, NPPC President
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“That failure not only has hurt dozens of US industries economically, but it could prompt other countries to think twice about entering into trade deals with the United States,” Mr Carney added. “Our trading partners need assurance that the United States will live up to its trade obligations.”

The US Congress in early March 2009 failed to renew a pilot program that allowed a limited number of Mexican trucks to haul freight into United States beyond a 25-mile commercial zone. The Cross-Border Trucking Pilot Programme was started by the US Department of Transportation in September 2007 as a way to begin implementing the NAFTA trucking provision, which was supposed to take effect in December 1995.

In February 2001, a NAFTA dispute-settlement panel ruled that excluding Mexican trucks violated US obligations under the trade deal. The ruling gave Mexico the right to retaliate against US products, which it did in March 2009, placing higher tariffs on more than $2.4 billion of US goods. Pork was not included on that initial retaliation list.

“Mexico is a top market for all kinds of US exports, providing millions of jobs to US workers,” said Mr Carney. “The retaliation puts thousands of agricultural jobs at risk, including, now, pork industry jobs, and thousands of manufacturing jobs at risk.”

NPPC has been urging the Obama administration to work with Congress to quickly resolve the trucking issue with Mexico, which last year bought $762 million of US pork.

[mikey]

CME: What Determines Value of Market Animals?
US - What determines the value of a market animal? We all know that the answer to that question could fill volumes, depending on the level of detail one wants to use, write Steve Meyer and Len Steiner.



Costs, supply, productivity, demand, processing costs, the level of competition in the market on a given day. All of those factors plus many more contribute to the value of a market animal.

Research has shown that most of those factors come to play in determining, primarily, the values of meat cuts at the wholesale level. It is where consumers’ tastes, preferences and income/ expenditures come to play through the actions of retailers, foodservice operators and exporters — the people who interact directly with those consumers. It is also where the packer — the person who interacts directly with the producers — exerts the forces coming from the supply side of the market.

So just how related are market animal prices to wholesale prices? The answer, as can be seen in the charts below, is “Very much!”

 


The top chart shows the relationship of weekly average cattle prices to the weekly average cutout value plus weekly average byproduct value from 1998 through 2009. Cattle prices are weighted averages of steer and heifer prices, both live and dressed stated on a carcass basis. The cutout value is the weighted average cutout value for Choice and Select grade beef.

The fitted line (in this case a third degree polynomial) says that the cutout plus by-product value explains 94.2 per cent of the variation in cattle prices over this time period. We have inserted the 45° line to represent the point at which the animal price would equal the value of the carcass plus the by-products. So — the horizontal difference between the 45° line and any data point would represent the packers’ average gross margin for any given week. The horizontal difference between the 45° line and the regression line would represent an estimate of the packers’ average margins at any given cutout + byproduct value or, if one reads off the vertical axis, any weighted average feedlot price.

Note that beef packers gross margins tend to get lower when prices are lower (ie. supplies are high) and get very wide when prices are high (ie supplies are low. We think the reason for this relationship is that there has been significant excess capacity in beef packing. Large supplies allow better plant utilization and drive down per-unit processing costs, allowing packers to pay more for cattle relative to their wholesale value. Tight supplies push packers’ per-unit costs very high, causing them to reduce cattle bids relative to output value.

The hog chart relates weekly average Iowa-Minnesota barrow and gilt prices to USDA’s 51-52 per cent cutout value plus the value of by-products. Note that we did delete 13 observations that had hog prices below $30 from this graph just to make it easier to read. Eleven of those were for weeks from October 1998 to January 1999 during the hog supply vs. packing capacity mismatch of that fall. All observations were included in the regression calculation whose logarithmic function explains 92.9 per cent of the variation in hog prices. The relationship of the regression line and the 45° line is quite different for hogs. We think the reason is that the pork packing sector has been much more correctly sized relative to supplies during the time period in question. Pork packers’ margins grow when supplies are large and prices are low because they are running at or very near capacity. This means that marginal processing costs (change in total costs per unit change in throughput) are high because throughput can be increased by only small amounts. Expected packer margins are relatively stable at all other price levels, increasing only slightly at high values when supplies are likely very tight.

[mikey]

Market Preview: Cutout Values Break More Records
US - In this week's US Market Preview, published in National Hog Farmer's Weekly Preview, Steve Meyer, Ph.D. of Paragon Economics, Inc., discusses last week's record high pork cutout values.



Another week, another record-high cutout value seems like no big deal. That’s the way it goes in this wonderful pork industry. Right?

That judgment is offered with tongue planted firmly in cheek, since it is indeed a big deal when our product can command such values from a marketplace that is anything but robust! The new weekly record is $94.99/cwt., breaking the old record that stood for exactly one week (See Figure 1).


The best part of this record week is that the entire increase got bid into the price of negotiated pigs (See Figure 2), and even pushed the weighted average across all pricing methods (Figure 3) back to the same level as in late July. Truth is, this week’s strength in hog prices was more influenced by last week’s cutout value run since it created incentives for packers to slaughter more hogs and thus chase hogs a bit.

 


Federally-inspected hog slaughter last week totaled 2.110 million head, 1.8 per cent higher than the previous week, but 4.2 per cent lower than last year. Though still significantly short of 2009 levels, last week’s run marks the first week since 17 July in which the number of hogs slaughtered in federally-inspected plants has exceeded the level suggested by the June Hogs and Pigs Report.

The cumulative shortfall relative to the predicted level since July 17 is 276,700 head and the question is, “Are those hogs still out there or were they never there in the first place?” As with most things, the answer will likely be some of both. But hot weather and the “bin bottoms” of an already poor quality corn crop lead me to think we will see the vast majority of these 277,000 critters in the weeks to come.

Their market impact will be heavily dependent on how far these animals get spread out. If 50,000 head/week make market weights over the next six weeks, it would add 2 to 2.5 per cent to weekly slaughter totals. That kind of addition would make for a sharp seasonal drop-off – that is, if the pigs are actually still out there.

The normal seasonal pattern is for cash hogs to drop $10-$15/cwt. carcass from late August to October and $12-$18/cwt. carcass from late August to December. Those normal patterns would put October cash hogs in the $70-$75 range, and December hogs between $67 and $73. October and December Lean Hog futures were $74.83 and $72.58, respectively, on Friday. The average basis from the past three years would put cash hogs in Iowa-Minnesota at $71-$74 in October and just over $70 in the first half of December. The second half of December, which must be figured off the February contract, would be in the $67-$69 range. Futures appear to be accurately priced at this point relative to a normal seasonal pattern.

Competition Workshop Goes as Expected
The US Department of Agriculture/Department of Justice livestock competition workshop in Fort Collins, CO, last Friday went pretty much as expected. While the original list of panelists appeared to me to be tilted firmly in favor of the “we need government intervention” crowd, I have to say that the actual discussion, as well as the audience statements, were more balanced than I expected.

Unfortunately, Attorney General Eric Holder and Assistant Attorney General for Antitrust Christine Varney were not around to hear much more than their own statements, as both left after the first politician-laden panel. Secretary of Agriculture Tom Vilsack did stay until lunch, but missed the afternoon sessions that included the lion’s share of comments from producers. In his defense, it should be pointed out that Vilsack attended the dedication of a new US Forest Service lab at the Rocky Mountain Research Station in Fort Collins Friday afternoon. Though I do wish he had stayed at the workshop, I do appreciate his judicious use of travel expenses.

While the session dealt primarily with cattle issues, pork producers were represented by Alden Zuhlke of Nebraska and Chris Peterson of Iowa. The two presented quite different views of hog marketing, with Zuhlke talking about the importance of marketing contracts for bringing his three sons back into his operation, and Peterson focusing on niche marketing and blaming market woes on packer concentration and packer-owned pigs. Mark Greenwood of Agstar Financial Services in Mankato, MN, brought a lender’s perspective to the discussion and made it clear that contractual relationships had been positive for his clients and had contributed to a number of new entrants to the pork industry. All expressed some concern about the thinness of negotiated hog sales.

Comments on the Grain Inspection, Packers and Stockyards Administration’s (GIPSA) proposed rule were reasonably balanced between pros and cons. The rule was not a target of the workshop (a given since GIPSA originally intended to close the comment period before the workshop!), but comments were allowed and will become a part of the comment record which GIPSA must address in crafting the final rule.

 



As published in National Hog Farmer's Weekly Preview.

[mikey]

Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME closed mixed on Monday. OCT’10LH futures finished at $74.875/cwt; down $0.050/cwt and $3.350/cwt under last report. The FEB’11LH contract closed up $0.025/cwt at $75.100/cwt; $2.975/cwt lower than last Monday. Floor sources said the pits think that cash prices are topping and technical selling is pressuring futures prices. Retail prices turned lower with USDA putting the average cash pork price at $93.51/cwt; off $0.22/cwt and $1.98/cwt lower than last report. Rolling October bull positions into December and February weakened prices. The latest lean hog index was placed at 84.30/lb; up 0.09/lb and 0.52/lb over this time last week. Short covering was the primary trading action because of the large discount to cash prices caused by recent losses in October futures. According to HedgersEdge.com, the average packer margin was raised $0.50/head to a positive $21.50/hd based on the average buy of $59.26cwt vs. the average breakeven of $67.32/cwt.

CORN futures on the Chicago Board of Trade (CBOT) closed up Monday on reports that corn yields will likely be lower than USDA estimates of 165 bu/ac. Yield estimates are running 163.79 bu/ac. The SEPT’10 contract closed at $4.254/bu; up 4.5¢/bu and 8.25¢/bu higher than last report. DEC’10 corn futures closed up 5.5¢/bu at $4.414/bu and 8.75¢/bu higher than last Monday. The DEC’11 contract closed at $4.466/bu; up 6.25¢/bu and 0.75¢/bu higher than a week ago. Increased demand and exports were supportive as USDA put corn-inspected-for-export at 45.265 mi bu vs. expectations for 33-36 mi bu. Dry, hot weather in the US Midwest have traders thinking an early harvest may be coming but the weather will also hurt yields if it continues. Large speculators are net bulls as funds bought over 10,000 lots. It would be a good consideration to price 60 per cent of the 2011 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down on Monday. SEP’10 soybean futures finished down 4.0¢/bu at $10.180/bu but 11.0¢/bu higher than a week ago. NOV’10 futures closed at $10.224/bu, down 3.5¢/bu but 17.0¢/bu higher than last week at this time. NOV’11 soybean futures closed down 2.5¢/bu at $10.120/bu; 15.5¢/bu over last report. Soybeans are weakening on softening basis at gulf ports as harvest gets going. Exports were bearish as USDA put soybeans-inspected-for-export at 7.174 mi bu vs. expectations for 10-15 mi bu. Funds sold over 2,000 lots as large speculators lowered net bull positions. Soybeans were also pressured by spreaders selling soybeans and buying corn. Both soybean and corn have yield challenges. It would be a good idea to hold at 90 per cent sold in the 2010 crop and price up to 30 per cent sold in the 2011 crop.

WHEAT futures in Chicago (CBOT) closed up on Monday. The SEPT’10 wheat contract closed at $6.712/bu; up 8.75¢/bu but 21.0¢/bu under last week at this time. JULY’11 futures finished up 5.25¢/bu at $7.102/bu; 8.25¢/bu cents lower than last report. Drought in Russia, Australia, and Argentina along with too much water and rain in Germany and northern France have combined to support wheat futures. Exports were supportive with USDA putting wheat-inspected-for-export at 25.521 mi bu vs. expectations for 20-25 mi bu. Large speculators are shifting from net-bear to net-bull positions with funds buying 4,000 lots. It would be a good idea to get to 85 per cent sold in the 2011 crop.


 

[mikey]

New Information on Feeding Wheat to Pigs Out
US - Research shows that wheat is a viable energy source for pigs, but little information is available about using this feedstuff in swine operations today.



Hans H. Stein, University of Illinois associate professor in the department of animal sciences, has just released a new brochure on "Feeding Wheat to Pigs."

"Our goal is to increase awareness of wheat as an alternative feed for pigs," Dr Stein said. "We want to inform producers of the advantages of feeding wheat as well as considerations they will need to keep in mind if they choose to feed it."

Wheat is higher in protein than corn and comparable in energy. It can be an economical choice in wheat-producing areas, in areas where corn is scarce, or when the price of soybean meal or other protein sources is high.

"Pigs fed wheat-based diets can grow as efficiently, and with similar meat quality as pigs fed corn-based diets when digestible energy and amino acids are equalised," Dr Stein said. "The nutritional value of wheat allows producers to pay slightly more per bushel for wheat than for corn."

Dr Stein encourages producers to compare prices throughout the year.

"In Illinois, this can be the best time of the year to purchase wheat for use in a swine diet," Dr Stein said. "Oftentimes local wheat prices are attractive when compared with corn this time of the year when wheat has been harvested, but new corn is still not available."

The brochure can be downloaded by clicking here, or producers can contact their local Illinois Extension office for copies.

[mikey]

CME: Producers Aware Good Times Won't Last
US - USDA’s monthly Crop Production and World Supply and Demand Estimates reports will be released on Friday and Dow Jones published the results of its monthly pre-report survey of market analysts today, write Steve Meyer and Len Steiner.



The key numbers for corn and soybeans are shown below. Analysts expect USDA to lower both yields and total crop size for both corn and soybeans. The average estimates are roughly 1 per cent lower than USDA’s August numbers for corn yield and production and soybean production and 0.5 per cent lower for soybean yield. Both crops would still be record-large if the averages of analysts’ predictions are correct. These crop sizes and yields imply harvested acres of 80.926 million for corn and 77.763 million for soybeans. Those compare to 81 and 78 million acres, respectively, for the two crops in the July and August WASDE reports. We still wonder if USDA might reduce these harvested acres numbers given this summer’s wet conditions in some important corn and soybean states.


It is not often that one gets to witness the beginning or end of a true long-run phenomenon. One obvious difficulty of that statement is that realizing you have witnessed the beginning of one could take years. And by then, who can actually remember witnessing the beginning? But we digress.

We may be, however, witnessing the end of the hog cycle — one of the most regular and long-lived cycles in agriculture and, perhaps, economics. Our textbooks claimed that the hog cycle could be traced back to the 16th century in England and US data show a regular how cycle prior to 1900. But why has there been a hog cycle and how is it changing?

Textbooks once claimed that the reason for the hog cycle (or any other cycle, for that matter) was because economic agents expected current conditions to last a long time. Probably not forever but for the foreseeable future at least. Therefore, if conditions were bad, some agents would exit the business, driving supplies lower and prices higher thus making conditions better. If conditions were good, existing producers would produce more or outsiders would enter the business, driving supplies higher and prices lower thus putting the kibosh on profits and, according to this theory, eventually reversing everyone’s viewpoint and starting the cycle all over again. That explanation seems to assume that people are very, very stupid and never learn a clear lesson: Things change. If one knows conditions are going to change, why would one act as if they are not going to change?

A better explanation was that producers know good times will not last forever but plan to survive the down times in order to be ready for good times to return. About the only time that someone can grow in or enter into a business is when things are good because cash, from either operations or lenders or outside investors, is available only when conditions are good. Conversely, producers cut back or exit in tough times knowing full well things will get better but realizing that they and/or their banker simply can not or will not put enough cash into the business to get it to those promised good times.

The advent of high-investment facilities has mitigated the magnitude of output shifts and, quite possibly, lengthened the period from peak to peak or trough to trough for the hog cycle. The chart below shows that year-on-year percentage changes in hog slaughter have gotten smaller and smaller with the sole exception of the output surge of late 2007 and 2008 which was caused by circovirus vaccines. The standard deviation of quantity changes has gotten progressively smaller each decade since 1970. It is not yet zero but is getting close and the once clearly-discernible pattern is much more random.


But the hog price cycle appears alive and well even if it is much more erratic. The hog price cycle continues to include year-on-year changes of 30 to 40 percent even as year-on-year output changes get smaller and smaller. This implies a more and more inelastic demand for hogs, meaning that the “proper” output level is critical for producers’ economic well-being.

[mikey]

CME: US Meat, Poultry Exports in July Mixed
US - US meat protein exports were mixed in July as shipments of US beef continued to post solid gains while pork and chicken exports were lower compared to July 2009, write Steve Meyer and Len Steiner.



Below is a brief summary of the July data:

Pork: US pork exports pulled back sharply in July in large part due to a decline in exports to Japan. July shipments to the Japanese market were reported to be 102.3 million pounds, 29.5 million pounds or 22 per cent less than the previous month and 10.7 million pounds or 9 per cent lower than the previous year. Exports to Mexico also declined about 7.2 million pounds or 8.3 per cent compared to the month prior and were at about the same level as a year ago. Russia continues to be a problem for the US pork industry. Last year, July pork exports to Russia were 42.8 million pounds while this July US pork exports to this country were a mere 14.4 million pounds, a 66 per cent decline from year ago levels. US pork exports to China, the Caribbean and many smaller markets generally remain strong but the declines in exports to Japan and Russia were enough to stop the momentum created in Q2.


Beef: July beef exports built upon the strong performance in the first half of the year and shipments to most key markets posted robust growth. As the chart below shows, the steady gains in beef exports to Asia have contributed significantly to the recovery in US beef exports. July shipments to Japan were 37.3 million pounds, 10.5 per cent higher than a year ago while exports to S. Korea at 31.7 million pounds were up about 313 per cent from year ago levels. Mexico and Canada remain very important for the US beef export business and recent increases in exports to Mexico should be seen as positive. Beef exports to Mexico were 45.3 million pounds, still about 16 per cent lower than a year ago but off the lows registered earlier in the year. US beef exports to smaller markets also have become more important in recent months and in July rose about 47 per cent from year ago levels.


Broilers: Almost no US broiler meat went to Russia in July even though the Russian President Medvedev and President Obama agreed on a deal for US chicken exports to Russia in late June. Total US broiler exports in July were 520.7 million pounds, 40 million pounds or 7.1 per cent lower than year ago levels.

[mikey]

Pork Commentary: US Hog Prices Remain Strong
US - Jim Long discusses US hog prices in his latest Pork Commentary, who is attending the biannual Pork Expo 2010 in Brazil.


Jim Long is President &
CEO of Genesus Genetics.
US hog prices continue to stay strong. Iowa – Minnesota last Friday closed at 80.85 cents lean per pound continuing to hover over the 80 cent level. A year ago lean hogs were just over 50 cents lean per pound that is a $60 per head difference year over year. Instead of losing $40 per head a year ago, we are now making $20 per head. Prices are better but we still are not filling the equity hole as fast as it was dug.

Last week’s US marketing’s were 1.917 million down 131,000 head from the same week a year ago. You don’t have to look much farther than lower supply to see the reason hog prices have appreciated so much in the last few months. Pork demand is strong with USDA pork cut – outs hovering around 90 cents lean per pound. Packers are making money which is good for the short term and long term viability of our industry. It appears that pork bellies in storage last week was almost non – existent at 424 compared to a year ago when it was 28,749. The low pork storage supply is a reflection of the strong demand and will in our opinion be a powerful support in maintaining high hog prices in the coming months.

Other Observations
Cash early wean pigs averaged $41.97 and cash 40 pound feeder pigs $55.78 according to the USDA report.


Broiler chick placements were up 2 per cent last week year over year. The chicken price is 85.09 pound compared to last year’s 79.99. Chicken, like hogs are seeing better returns. They are increasing production. Increased chicken production is more competitive meats for pork. The positive is Russia has recently resumed chicken trade with the USA Increased chicken exports will be positive for US pork prices.


The September US Quarterly Annual Product Production being put together by the USDA says there will be 222.03 (billion pounds) produced in the US in 2010 down 700 million pounds from 2009. The projection for 2011 indicates about a 400 million pork production increase over 2010 with prices very similar to 2010.


The wildcard in the next twelve months will not be supply of pork. We expect prices will stay strong. The wildcard is reports grain prices are and will be higher. Consequently the cost of production for swine is higher (about $12 per head). This is crowding profits for swine producers. In some ways it is shocking with the US corn crop at record levels that corn prices keep going higher and higher. This in itself reflects the connection of world supply and demand. We are in a global market where now it matters as much what crops are in Russia as in your neighboring state.
This week we are attending the biannual Pork Expo 2010 in Curitiba Brazil. This is the largest pork show in Brazil. We will report our observations in next week’s commentary.


Author: Jim Long, President & CEO, Genesus Genetics 

[mikey]

Market Preview: Corn Crop Estimates Lowered
US - This week, in National Hog Farmer's weekly Market Preview, Steve Meyer, Ph.D. of Paragon Economics, Inc., comments on the latest Crop Production and World Supply and Demand Estimates (WASDE) reports.



Friday’s Crop Production and World Supply and Demand Estimates (WASDE) reports from the US Department of Agriculture (USDA) contained mixed news for US or Canadian pork producers. USDA’s latest forecasts for the corn crop called for lower yields and production and higher prices, while the soybean yield and production forecasts were higher than forecasts in August, as were forecast prices of soybeans and soybean products. Tables 1 and 2 are updated supply and utilization tables for corn and soybeans, respectively.

 


The 2010 average corn yield is now estimated to be 162.5 bushels/acre, down 2.5 bushels from last month and lower than the average pre-report estimate of 163.1 bushels/acre. USDA did not change its estimate of harvested acres (perhaps they believe that water-damaged acres will still be harvested but will negatively impact the average yield), but the lower yield put the estimated crop at 13.16 billion bushels – smaller than last month’s 13.365 billion-bushel estimate – but still 50 million bushels more than last year and still a new record corn crop.

Lower production, lower beginning stocks (due to increasing ethanol use and exports for the current crop year) and higher forecast 2011 exports offset a 100-million-bushel reduction in feed and residual usage to drop projected 2011 year-end stocks to 1.116 million bushels, nearly 200 million bushels lower than the August estimate. That level of stocks represents only 8.3% of projected usage, the lowest ending stocks-to-use ration since 1995-96. You may recall that year saw record-high prices that were not influenced by $140/barrel oil!

USDA increased their forecast range for the national weighted average farm price for 2010-11 corn to $4.00 to $4.80/ bushel. As can be seen in Figure 1, the midpoint of that range would represent the highest such price in history.


Some may ask how a $4.40/bushel price could eclipse the average price of 2008 when corn futures went above $7.50 and Omaha cash corn went above $7.00. The reason is the nature of the national weighted average farm price. It is the average of monthly prices weighted by monthly marketings – the latter of which are still heaviest at or near harvest. Those $7-plus prices in 2008 occurred in July when the market was trying to ration the existing corn supply over time and among uses in order to have enough grain to reach fall harvest. They counted far less in the national weighted average price than did the $3.10/bushel corn of the fall of 2007.

Soybean Yield Forecast Improves
Table 2 shows USDA’s September figures for soybeans. USDA forecasts the soybean yield to be 44.7 bushels/acre – up from the August forecast of 40 and nearly a full bushel higher than the average pre-report estimate. That record yield will provide a total crop of 3.485 billion bushels, also a record. Higher exports, though, pushed USDA’s projected carryout to 350 million bushels, down 10 million from last month. Those stocks will put the year-end stocks-to-use ratio at 10.6, over twice as large as this year and last.

In spite of larger supplies and reasonably healthy year-end stocks, USDA increased its price forecasts for beans, bean meal and bean oil from the August levels. The reason is simple: Soybeans must keep pace with corn prices in order to get acres planted next spring. That fact is especially true this year with wheat poised to compete effectively with beans next spring as well. Bean meal is now projected to average $270 to $310/ton, only slightly lower than this year’s projected average of $310/ton.

Hog Price Impact
What is the impact? Obviously, this report was negative for expected hog profits in the coming year. Higher corn and meal prices have pushed my forecasts of 2011 breakeven costs to over $70/cwt carcass weight, up from the low $60s back in June. While hog futures prices remain strong (every 2011 contract made contract-life highs last Thursday!), these higher costs show red ink for pork producers in Q4-2011, and have driven average forecast profits down to only $5.31/head for the year. That number was above $20/head back in June.

The reduction in profit expectations will have one positive impact: It will slow sow herd expansion and very likely make it smaller than it otherwise would have been. That has little impact for the first three quarters of 2011, but may keep the fourth quarter from being the wreck it might have been if producers had swung back to expansion mode quickly or aggressively or both.

Producer Action
So what can you do? Continue to manage margins. While your view of an “acceptable” margin may remain intact, you may have to adjust your idea of what is “realistic” for 2011. It will take a major hog price rally or big grain collapse to get margins back to June levels. I doubt that either will happen so I would not recommend waiting for $20-plus projected margins.

As always, balance what the market is offering you with your financial position and comfort level with risk. Many of you are in a much better risk-bearing position now, but profit offerings for the next three quarters are not at all bad. And remember that you don’t have to pull the trigger on everything at once.

As published in National Hog Farmer's Weekly Preview.

[mikey]

Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME finished up on Monday. OCT’10LH futures finished at $78.525/cwt; up $0.825/cwt and $2.225/cwt over last Monday. The FEB’11LH contract closed up $0.775/cwt at $80.375/cwt and $2.80/cwt higher than last report. Hogs were supported by the discount to cash ahead of seasonal demand and fund buying. Analysts are estimating 2.4-2.9 per cent lower supplies ahead of USDA’s cold storage report because of herd reductions over the past two years. USDA put the average cash pork cutout price at $91.14/cwt, down $0.67/cwt but $1.29/cwt higher than this time last week. The latest CME lean hog index was placed at 83.04/lb, up 0.12/lb and 0.57/lb higher than last report. CME’s hog index represents the actual price of hogs on a lean basis quoted by USDA and lags behind the spot month by two days. According to HedgersEdge.com, the average packer margin was raised $4.90/head to a positive $16.50/hd based on the average buy of $59.43cwt vs. the average breakeven of $65.57/cwt.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. DEC’10 corn futures closed off 5.0¢/bu at $5.082/bu but 24.75¢/bu over last report. The MAR’11 contract closed at $5.212/bu; down 4.5 cents from Friday. The DEC’11 contract closed at $4.732/bu; down 4.5¢/bu but 17.25¢/bu higher than last Monday. Corn futures rallied to their highest level in two years then retreated to end down for the day on profit-taking and farmer hedge-selling. According to several floor sources traders backed off fears that a late US harvest and frost in China might limit supplies. Others on the floor see corn prices falling after such a strong opening as a predictor of topping action in corn futures. Even the most pessimistic traders don’t think the supply hiccup is worth $5.22/bu. Most sources believe, me included that corn prices will be pulling back over the next few days. USDA’s World Agriculture Supply Demand Estimate (WASDE) report due out October 8 should give another snapshot of supply. The most recent report by USDA projected an average yield of 162.5 mi bu per acre. Exports were disappointing with USDA putting corn-inspected-for-export at 28.460 mi bu vs. expectations of 35-40 mi bu. China is expected to continue importing corn as imports soared to 432,191 tonnes (17 mi bu). Funds sold 7,000 lots on profit taking amid a volume of 356,000 contracts, up 10 per cent from the 30-day average of 323,218 lots. It is significant to note that net fund length in corn was at 444,100 lots, the highest since April 1996 and 32 per cent open interest, an all-time high. Cash corn was flat to weaker amid brisk farmer selling.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. NOV’10 futures closed at $10.844/bu, up 15.5¢/bu and 50.0¢/bu higher than last report. The MAR’11 contract closed at $11.020/bu; up 17.25¢/bu from last close. NOV’11 soybean futures closed up 14.5¢/bu at $10.704/bu and 43.5¢/bu higher than last week at this time. Soybeans finished up a one-year high on concerns of dryness in portions of South America’s crop region prior to planting, a freeze in Canada that may harm immature canola, and a freeze in China. USDA put soybeans-inspected-for-export at 12.078 mi bu vs. expectations for 8-12 mi bu. China bought 225,000 tonnes (8.3 mi bu). Oil prices rose after a new report on Monday said the US has endured the longest recession since World War II. Crude oil futures influence demand for corn and soybean prices because of their relationship with energy. While corn yields are looking off reports of soybean yields so far are promising. Prices are being influenced by corn and wheat strength even though American farmers are expected to harvest a bumper crop in 2010. Funds bought 5,000 lots with volume near 160,000 contracts, up nearly 65 per cent from the 30-day average of 96,929.

WHEAT futures in Chicago (CBOT) finished mixed on Monday with nearby contracts up to JULY’11 down while the JULY’11 contract and those past it showing gains. The DEC’10 wheat contract closed at $7.316/bu; down 7.5¢/bu from Friday’s close. JULY’11 futures finished up 2.75¢/bu at $7.500/bu and 6.0¢/bu higher than a week ago. Nearbys suffered from profit taking with deferreds supported by dry weather in Australia, Russia, parts of Argentina, and season-ending frost in Canada. Exports were somewhat supportive with USDA reporting wheat-inspected-for-export at 29.934 mi bu vs. expectations for 25-30 mi bu. Wheat prices retreated on profit-taking since the Russian announcement of the market-shocking ban on grain exports early last month. Market participants remain nervous about global grain production because Russia needs more rain to plant its next wheat crop. Funds sold 3,000 lots amid 59,000 contract volume which was down nearly 50 per cent from the 30-day average of 113,148 lots.

[mikey]

US Pork Outlook - September 2010
Pig prices are expected to be supported by lower pork supplies and respectable consumer demand for pork products for the rest of this year, according to Rachel J. Johnson in the latest Livestock, Dairy, and Poultry Outlook from the USDA's Economic Research Service.

 

Summary
For the balance of 2010, hog prices are expected to be supported by lower pork supplies and respectable consumer demand for pork products. The third-quarter price of live equivalent 51-52 per cent lean hogs is expected to average $59-$60 per hundredweight (cwt). Prices are expected to average $51-$53 per cwt in the fourth quarter. The Quarterly Hogs and Pigs report will be issued by USDA/NASS on 24 September 2010.

US Variety Meat Exports and the Global Marketplace
Variety meats may not make up the ‘heart’ of the US meat industry, given that dishes such as beef tongue or pig heart do not typically grace American dinner tables, write Daniel L. Marti and Rachel J. Johnson. In fact, these and other variety meats are often considered to be inferior food in US markets. Nonetheless, variety meat from beef and pork slaughter is important to the bottom line of the US meat industry. This is evident in both the value that variety meat adds to the US meat industry and the volume of sales into the variety meat channel.

Animal by-products are items produced as a result of animal slaughter and include portions of the entire animal that are not part of the dressed carcass. In the United States, animal by-products fall into two categories: edible and inedible offal. Variety meats are a subcategory of edible offal consisting of the liver, heart, tongue, tail, kidney, brain, sweetbreads (thymus and/or pancreas gland, depending on animal’s age), tripe (stomach), chitlings and natural casings (intestines), fries (testicles), rinds, head meat, lips, fats and other trimmings and blood (Ockerman and Hansen, 1998). Some edible offal is also used to make gelatin, sausage casings and rennin used in cheese-making. These products are all part of the US meat industry, but just how important are they?

The supply of edible offal produced in the United States is relatively large in comparison with its domestic demand. US demand for edible offal stems from consumption of products such as sausages and hot dogs and the use of variety meats in pet food. The remainder is available for shipment to foreign markets where they are more highly valued. While carcasses and high-value cuts comprise the majority of total red meat exports, edible offal exports have constituted about 22 per cent of the volume of total beef- and pork-product exports over the last five years. The United States has historically been the world’s largest exporter of beef and pork edible offal, accounting for more than 18 per cent of total world exports over the last 10 years (Figure 1). US pork edible offal exports were nearly 20 per cent of total pork exports in 2009, and over 24 per cent of total US beef exports last year were edible offal.

 
Variety meats in some countries are considered delicacies, while in other countries, their consumption is associated with low incomes (Halstead, 1999). However, in many regions variety meats are the basis of traditional flavors. Demand for variety meats is especially strong in many Asian nations. In China, most recipes call for sharp-tasting variety meats, not muscle cuts, which are considered bland (Hayes, 1997); cow tongues are considered expensive delicacies in Japan; sliced beef feet are used for soup in South Korea; and stomachs, lungs, and livers are highly valued meats in Colombia (Bean, 1996). Tongue and liver are used in many Mexican dishes, such as putzaze (tripe and liver with tomatoes), lengua (tongue with green chilies) and menudo norteña (tripe soup). However, in Russia, one of the world’s largest offal importers, variety meats are connected to lower incomes and used as an inexpensive way to obtain protein and nutrition (Kamenski, 2006).

Pork variety meat exports and markets
Mexico is by far the largest importer of US pork variety meats, accounting for 46 per cent over the last decade (Figure 2). Other major destinations of US exports include Hong Kong/China, Russia, Japan and South Korea. However, many of these markets have developed only in recent years. Since 2008, Hong Kong/China has begun to rival Mexico as the number one export market for US pork variety meats in terms of volume. In this study, Hong Kong and China are considered as one export destination because much of the US product is transshipped from Hong Kong to China (Bean, 1996). Until 2007, exports of all US variety meats to Hong Kong/China were marginal but last year, US exports of pork variety meat to Hong Kong/China jumped to almost 123,000 metric tons (MT), 32 per cent of all US pork variety meat exports.

 
Major US pork variety meat exports over the last five years include hog feet (14 per cent of US pork offal exports), fresh or chilled offal (11 per cent), rinds (10 per cent) and all other frozen offal (56 per cent) (Figure 3). In terms of the destinations for these products, Mexico imported over 94 per cent of all US-exported pork rinds and 76 per cent of US fresh or chilled pork offal exports, Russia was by far the largest purchaser of US hog liver exports in 2009, and Hong Kong/China also was the number one importer of US hog feet, pig tongues and pig-heart exports last year.

 
Looking ahead
Protein intake is often dependent upon income, as are the types of proteins consumed. Increasing per-capita incomes and rising GDP may have varied affects on consumption and trade of variety meats, depending on how the products are viewed in each country.

In countries such as Egypt and Japan, where certain variety meats are more highly valued, increasing wealth and GDP growth may result in increased US variety meat exports. Egyptian demand should remain strong since the country has a younger population, a relatively high rate of economic growth compared with world growth, and a limited capacity to expand domestic production, factors likely to support growth in demand for beef products (Kamenski, 2006). As incomes rise in other countries, certain variety meats may begin to be viewed as inferior goods, which may cause US variety meat exports to decline in some segments of these markets. In portions of the Mexican, Russian and Chinese markets, for example, variety meat consumption may give way to increasing consumption of muscle cuts as tastes and preferences change. However, preferences in other countries for certain culinary traditions – which are strongly tied to variety meat use – will continue to play an integral role in demand for US variety meat exports.

[mikey]

September Quarterly Hogs & Pigs Report Analysis
US - USDA's September hogs and pigs report was right on pre-release trade forecasts, writes Ron Plain.

 
Ron Plain
USDA said the market inventory was down 2.7 per cent. The average of the pre-release trade estimates was for a 2.8 per cent decline. Kept for breeding was down 1.8 per cent according to USDA. The trade estimate was for a 1.1 per cent decline. USDA's estimate of the total number of hogs and pigs on US farms at the start of September was down 2.6 per cent compared to 12 months earlier. The average of the trade estimates was for a 2.7 per cent decline. (See Table 1 below)

USDA made some downward revisions to past inventory estimates to bring them more in line with spring hog slaughter. USDA lowered their previous estimate of the June market hog inventory by 250,000 head (0.4 per cent), decreased the reported number of sows farrowed during December-February 2009 by 1.0 per cent and decreased the December-February pig crop by 281,000 head (1.0 per cent). The revisions helped, but I do not think they were quite large enough.

The September swine breeding herd was 7.4 per cent lower than at the last cycle peak in December 2007. On average, the breeding herd is 37 thousand head smaller on 1 September than on 1 June. This year it was 18,000 head (0.3 per cent) smaller than in June but 10,000 head (0.2 per cent) larger than in March. The lack of steady growth is encouraging. It will be very helpful for producers' balance sheets if rebuilding the sow herd occurs slowly.

In 2009 the September breeding herd inventory was 93,000 head smaller than on 1 June. This year it was 18,000 head smaller. Thus, USDA says the breeding herd declined by 75,000 fewer head this summer than last. June-August sow slaughter was down by 123,500 compared to a year ago. About 60,000 of the drop was due to reduced imports of Canadian sows for slaughter, leaving 63,500 fewer US sows slaughtered this summer than last. The USDA data implies 11,500 more gilts were added to the breeding herd this summer than last.

USDA said summer (June-August) farrowings were down 1.8 per cent and forecast fall farrowings to be down 1.2 per cent with winter 2010-11 farrowings up 0.5 per cent compared to 12 months earlier. (See Table 3) Summer farrowings were 0.7 per cent higher than trade expectations and the forecast of fall farrowings is 0.4 per cent lower than expected.

USDA said June-August pigs per litter tied the record of 9.81 head set the previous quarter and were 1.1 per cent more than the same months last year. Much of the benefit of reduced farrowings was offset by increases in the number of pigs weaned per litter. Summer farrowings were down 1.8 per cent; but with 1.1 per cent more pigs per litter, the summer pig crop was down only 0.7 per cent.

USDA's survey indicated the number of market hogs weighing 180 pounds or more on 1 September was down 5.6 per cent compared to 12 months earlier. (See Table 2) This is in line with barrow and gilt slaughter since September 1. The 120-179 pound market hog group was down 3.4 per cent; the 50-179 pound inventory was down 2.0 per cent; and the inventory of pigs weighing less than 50 pounds was down 1.1 per cent compared to a year earlier.

Canadian hog imports during the June-August quarter showed feeder pigs down nearly 7 per cent and slaughter hogs imports down 20 per cent. In 2007, 10.0 million live hogs were imported from Canada. Last year, 6.4 million head came south. We are expecting 5.5 to 5.7 million live hogs to be imported in 2010.

Based on the 50-179 pound market hog inventory and the expectation of a continuing decline in live hog imports, our forecast is for a decline of 3.1 per cent in fourth quarter 2010 hog slaughter compared to October-December 2009. With this level of pork production, we expect 51-52 per cent lean hogs to average in the mid $50s live and Iowa-Minnesota negotiated sales to average in the low to mid $70s on a carcass weight basis.

For the first quarter of 2011 we expect daily hog slaughter to be down 1.2 per cent from January-March 2010 (with one extra slaughter day, total first quarter slaughter should be up 0.4 per cent) with 51-52 per cent lean hogs averaging in the mid to upper $50s live, and Iowa hogs averaging close to $76/cwt on a carcass basis.

With the number of litters farrowed expected to be down 1.2 per cent this fall and pigs per litter increasing by 1 per cent or so, the fall pig crop is likely to be close to a year earlier. We are forecasting second quarter 2011 slaughter to be down 0.3 per cent compared to a year ago. Look for carcass prices of barrows and gilts to be mostly in the high $70 to low $80s.

The forecast 0.5 per cent increase in winter farrowings should be supplemented by an increase in litter size and yield a winter pig crop 1.6 per cent or so larger than a year-earlier.

Our estimates of slaughter and prices for the next six quarters are in Table 4.

Table 1.  Hog Inventories September 1, U.S.
______________________________________________________________
 
                                           2010 as % of 2009
       Market                                     97.3
       Kept for breeding                          98.2
       All hogs and pigs                          97.4
______________________________________________________________
 
Table 2.  Market Hogs on Farms September 1, U.S.
______________________________________________________________
 
     Weight Category                       2010 as % of 2009
        Under 50 pounds                           98.9
        50 - 119 pounds                           98.0
        120 - 179 pounds                          96.6
        180 pounds and over                       94.4
     Pig Crop
        June-August                               99.3
______________________________________________________________
 
Table 3.  Sows Farrowed and Farrowing Intentions, U.S.
______________________________________________________________
 
                                            2009 as % of 2008
       March-May 2009                              98.9
       June-August 2009                            96.2
       September-November 2009                     96.3
                                            2010 as % of 2009
       December-February                           95.4
       March-May 2010                              95.3
       June-August 2010                            98.2
       September-November 2010                     98.8
                                            2011 as % of 2010
       December-February                          100.5
______________________________________________________________
 
 
Table 4.  Commercial Hog Slaughter and Barrow and Gilt Price by Quarter
_________________________________________________________________________
 
           --Comm. Slaughter--   ------Barrows & Gilts, price/cwt------
                     Change        51-52%    Iowa-Minn   Non-packer-sold
Year &     Million    from         Lean         Base            Net
Quarter      Head   Year ago       Live        Carcass        Carcass
_________________________________________________________________________
 
2005 1       25.538   - 0.7%       $51.92       $69.79         $69.33
     2       25.030   + 1.2         52.09        70.21          70.25
     3       25.528   - 1.1         50.51        67.50          68.37
     4       27.486   + 1.1         45.54        60.22          61.68
     Year   103.582   + 0.1         50.02        66.96          67.43
 
2006 1       26.208   + 2.6%       $42.63       $56.38         $58.37
     2       24.839   - 0.8         48.45        65.27          65.96
     3       25.810   + 1.1         51.83        68.04          69.13
     4       27.880   + 1.4         46.13        60.53          62.04
     Year   104.737   + 1.1         47.26        62.54          63.86
 
2007 1       26.684   + 1.8%       $46.04       $59.90         $62.69
     2       25.526   + 2.8         52.55        69.45          71.39
     3       26.566   + 2.9         50.34        66.14          69.17
     4       30.396   + 9.0         39.44        52.08          56.83
     Year   109.172   + 4.2         47.09        61.91          65.04
 
2008 1       29.601   +10.9%       $39.64       $52.49         $57.41
     2       27.941   + 9.5         52.51        70.43          72.24
     3       28.696   + 8.0         57.27        75.67          78.05
     4       30.214   - 0.6         41.92        55.60          61.38
     Year   116.452   + 6.7         47.83        63.58          67.27
 
2009 1       28.503   - 3.7%       $42.11       $57.23         $60.43
     2       27.072   - 3.1         42.74        57.32          61.76
     3       28.428   - 0.9         38.90        51.43          56.68
     4       29.615   - 2.0         41.20        54.98          57.64
     Year   113.618   - 2.4         41.24        55.23          59.11
 
2010 1       27.631   - 3.1%       $50.41       $66.81         $68.32
     2       26.069   - 3.7         59.60        79.04          79.42
     3*      26.972   - 5.1         59.90        79.50          80.65
     4**     28.700   - 3.1        55 - 57      72 - 76        74 - 78
     Year** 109.372   - 3.7        56 - 57      74 - 75        75 - 77
 
2011 1**     27.750   + 0.4       $56 - 59     $74 - 78       $76 - 80
     2**     26.000   - 0.3        59 - 62      79 - 83        81 - 85
     3**     27.400   + 1.6        56 - 59      74 - 78        76 - 80
     4**     29.000   + 1.1        49 - 52      65 - 69        67 - 71
     Year** 110.150   + 0.7        55 - 58      73 - 76        75 - 78
 *estimated
 **forecast