Hog prices should begin to improve seasonally over coming weeks, although some longer-term stumbling blocks remain, said Purdue University Agricultural Economist Chris Hurt, in an outlook report.
The normal seasonal tendency is for sharp increases in hog prices through April, May and June, Hurt said.
From current live hog prices of around $40 per cwt, prices were expected to rise to the mid-$50s in June, Hurt said. Butcher hog prices were expected to finish the first quarter with an average near $40, then improve sharply to a second-quarter average around $50.
If some reduction in trade barriers to US pork exports can be achieved in coming weeks, then third-quarter average prices were expected to be in the lower to mid-$50s, he said. Last quarter prices were expected to drop to the mid-$40s.
LOW PRICES COULD BLUNT EXPANSION
The industry recently experienced some of the lowest hog prices of the past decade, Hurt said. With live hog prices near $40 per cwt and estimated total costs a bit over $50, estimated losses for average-cost farrow-to-finish producers were $28 per head for the first quarter of 2018.
Hog prices have been struggling so far this year, Hurt said. USDA reported that live prices in January and February averaged less than $40 for the first time in more than a decade. In February, the USDA estimated live prices were $39.04 per cwt, the lowest February price in 16 years dating back to 2003.
A bearish price story usually points quickly to large supplies, and this is the case for pork, he said. So far this year, supplies have been up about 4% with most of this a result of higher slaughter numbers.
The inventory count in the December USDA Hogs and Pigs report indicated January and February slaughter numbers would be up about 3%, Hurt said.
So, head counts were running above anticipation, and producers have been selling just slightly lighter than the same period last year, he said.
Current losses are large and add to a string of six quarters of losses dating back to the final quarter of 2017, he said. These long-term losses likely have weakened producers’ financial positions, and tight margins and losses in 2018 and 2019 are incentives for the industry to slow breeding herd expansion, Hurt said.
Unfortunately, that may not occur as there remains a lot of inertia toward expansion that has been the norm since 2014, Hurt said. Packer capacity added in the past few years still is trying to fill, and thus is a stimulus to expansion.
The final reason producers may not reduce the rate of breeding herd expansion is their hope that US pork trade problems may take a more upward direction in coming weeks.
CATTLE, BEEF RECAP
Cash cattle trade has taken place this week at $126 to $128 per cwt on a live basis, steady to down $2 from last week, and at $202 to $205 dressed, steady to down $1.
The USDA choice cutout Wednesday was up $0.02 per cwt at $228.24, while select was down $1.07 at $219.28. The choice/select spread widened to $8.96 from $7.87 with 90 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Tuesday, was $139.08 per cwt, up $0.06. This compares with Wednesday’s Mar contract settlement of $141.55, up $0.25.