Pork production up as producers ship heavier hogs

The hog market remains under pressure despite lower hog inventories on both sides of the border. Hog prices in Peoria were quoted at $35, down $2 from a month earlier. Western Canadian values were in the range of $1.40 kg to $1.50kg for nearby delivery; June forward contracts are still quite strong at $1.65 to $1.70. The cash market is functioning to encourage demand. Retail movement has eased causing wholesale supplies to build. Pork cutout prices are at three month lows as packing margins struggle in negative territory. Growing supplies of market ready hogs, high unemployment numbers, and lower household incomes are the main factors weighing on the hog market.

The USDA released their hog and pig inventory report showing total numbers down 2.7 percent from last year. Hog producers have been cutting back on production due to the poor financial returns. We will likely see further contraction in upcoming months which should bode well longer term for the industry.

Pork production is coming in larger than anticipated due to higher carcass weights. Producers have been holding back on marketings in hopes of higher prices. At the same time, corn prices have been creeping higher resulting in higher costs of production.

US unemployment is hovering at 8.1 percent and is expected to reach up to 11 percent by the end of 2009. At the same time, the number of people receiving assistance for things like food reached 32.2 million. One in ten Americans are on food stamps to put the situation in perspective. Pork is quite competitive comparative to other meat products but with people conserving every penny, pork products are also experiencing slower retail movement.

Unemployed workers are also taking longer period to find a new job which is extending the economic recovery period. Retired and semi retired people relying on equities for their income have seen their wealth deteriorate 30 to 60 percent. Major resorts and casinos are experiencing lower traffic as well. Pork made considerable inroads to high end restaurants over the past two years but this demand has also eroded. All these factors have contributed to lower pork consumption.

I am expecting hog prices to ratchet higher into June but the price outlook has been tempered by the consumptive patterns over the past month. In previous issues, I’ve been advising producers to take protection on summer marketings as the August lean hog futures were near record highs. It is difficult to be bullish at historical high prices given the current environment. I feel it is still a good idea to take protection on third quarter marketings given the current price structure.

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