Hog Prices Strength To Continue: Economist

Hog prices this fall have been stronger than anticipated and should continue into 2018, said Agricultural Economist Chris Hurt of Purdue University in “Farmdocdaily.”

In early October, USDA analysts estimated fourth-quarter live prices would average $38 to $40 per cwt.  Now it looks like the actual price will be $46 to $47, Hurt said.

 

DEMAND BEHIND SUPPORT

 

The better hog prices are because of consumer demand, he said.  Third-quarter US economic growth reached 3.3% with the unemployment rate at 4.1%, the lowest since 2000.

Strong income growth and more people working improves the consumption of meats, including pork, Hurt said.  The 2018 outlook is for continued income growth and even lower unemployment.

In addition, higher stock and housing values tend to cause consumers to spend more freely.

Pork also is growing in popularity with foreign customers, he said.  The 2018 world economy is expected to have its strongest year since the 2008-2009 recession.

So far this year, pork exports are up 8%, and net trade is up 10%.  US pork production is up about 2.5% this year, but the more positive trade balance means US consumers have only 1% more pork available.

With domestic population expanding by nearly 1%, this means pork available per person this year is about the same as 2016, Hurt said.

Mexico is the biggest reason for increased exports this year, he said.  Mexican pork purchases surged above Japan in 2015 to become the number one export destination.  2017 Mexican pork purchases exceeded Japan by 45%.

South Korea, the US’ fourth largest buyer, increased the volume of pork purchases from the US this year by 18%, and USDA analysts are suggesting an additional 6% rise for 2018.

Finally, increased packer capacity has begun to reduce packer margins and is likely contributing to higher farm level hog prices this fall, Hurt said.  Packer margins began to drop sharply in August 2017 as new capacity began to come on-line.

By October, packer margins, as reported by USDA, fell to 48 cents per retail pound compared with 79 cents a year earlier. These new plants were expected to continue to expand in 2018 as they work toward full capacity.

 

THE SUPPLY ANGLE

 

Last year’s predictions for larger 2017 pork supplies and higher hog prices turned to reality.  Live hog prices in 2016 averaged about $46 per cwt.  This price will be near $51 for 2017.

The futures market is optimistic about the same outcome in 2018, suggesting live prices may average about $53 in 2018.  Hurt’s estimates are for 2018 pork supplies to rise around 2.5% and if hog prices do rise again, it will most likely be because of demand.

For 2018, the current outlook is for positive returns.  The level of positive returns was expected to range from $6 to $8 a head.

 

CATTLE, BEEF RECAP

 

Scattered cash cattle trade came last Tuesday at $117.50 to $118.50 per cwt on a live basis, down $1.50 to $3 from the previous week with more Wednesday at $118 and at $188 on a dressed basis, down $1 to $2.  However, more trade came Thursday at $117 live and $187 dressed, down $2 and down $2 to $3, respectively.

No trading took place on the Livestock Exchange video auction Wednesday.

The USDA’s choice cutout Monday was down $0.06 per cwt at $205.53, while select was off $0.31 at $185.66.  The choice/select spread widened to $19.87 from $19.62 with 78 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Friday was $154.32 per cwt, down $0.08.  This compares with Monday’s Jan settlement at $145.45 per cwt, up $0.22.