USDA Pig Report "Ugly" - Analyst
If US and Canadian hog producers needed any more cold water to shock them into full-scale contraction, Friday’s Quarterly Hogs & Pigs Report from USDA ought to do it, says Economist Steve Meyer.
The numbers are huge and point to record slaughter in virtually every time period one wants to discuss in 2008, he says.
The report showed that the pig herd expanded seven percent on a year-over-year basis. The reading showed wider growth in the pig population than experts had forecast, and suggested that cash prices for hogs would remain stubbornly lower. The trends also suggested that the expansion of supply wouldn’t be reversed anytime soon.
It will be critical for exports to continue to grow and for domestic pork consumption to remain high. Even at that, producers will now be looking at carcass-weight cash, negotiated prices no higher than the mid-$60s this summer, with quarterly averages barely reaching that level in the second and third quarters and falling near $60/cwt., carcass, in the fourth quarter.
The best descriptive term I can think of is “ugly.”
It now appears that producers who have not already priced a substantial number of pigs for 2008 will see rivers of red ink. It will take unprecedented demand, either from exports or domestic sales or, more likely, both to keep this from happening. I do not believe demand can be strong enough, quick enough. We are going to have to go through this and it will not be pleasant.
What is very troubling is that things could definitely get worse. Feed prices could get higher. Large beef supplies are in the offing and chicken and turkey production remains well above year-ago levels. Consequently, there will be substantial competition in the marketplace. Slowing economies may force consumers to trade down in their food choices, giving lower-priced poultry an advantage.
What can we do in the short run? Get those hogs to town as soon as they reach a weight that will not take a price discount. Feed prices are now high enough and hog prices low enough that those last few pounds are getting less and less profitable – to the point of, perhaps, losing money. The opportunity is still limited because we are still running near slaughter capacity each week, but some effort is warranted, given these levels of supply.
The numbers are huge and point to record slaughter in virtually every time period one wants to discuss in 2008, he says.
The report showed that the pig herd expanded seven percent on a year-over-year basis. The reading showed wider growth in the pig population than experts had forecast, and suggested that cash prices for hogs would remain stubbornly lower. The trends also suggested that the expansion of supply wouldn’t be reversed anytime soon.
It will be critical for exports to continue to grow and for domestic pork consumption to remain high. Even at that, producers will now be looking at carcass-weight cash, negotiated prices no higher than the mid-$60s this summer, with quarterly averages barely reaching that level in the second and third quarters and falling near $60/cwt., carcass, in the fourth quarter.
The best descriptive term I can think of is “ugly.”
It now appears that producers who have not already priced a substantial number of pigs for 2008 will see rivers of red ink. It will take unprecedented demand, either from exports or domestic sales or, more likely, both to keep this from happening. I do not believe demand can be strong enough, quick enough. We are going to have to go through this and it will not be pleasant.
What is very troubling is that things could definitely get worse. Feed prices could get higher. Large beef supplies are in the offing and chicken and turkey production remains well above year-ago levels. Consequently, there will be substantial competition in the marketplace. Slowing economies may force consumers to trade down in their food choices, giving lower-priced poultry an advantage.
What can we do in the short run? Get those hogs to town as soon as they reach a weight that will not take a price discount. Feed prices are now high enough and hog prices low enough that those last few pounds are getting less and less profitable – to the point of, perhaps, losing money. The opportunity is still limited because we are still running near slaughter capacity each week, but some effort is warranted, given these levels of supply.