Hog prices have fallen and we are not seeing the results reports expected. However, we may have seen the lowest point for hog markets. Though the fourth quarter usually looks bleak, their may improvements lying ahead.
Prices Fall
Hog harvest the week of October 26 would run 2.569 million head. After the hurricane, the trade was expecting +2.6 million head kills for five or six weeks in October and November. This expectation was based on the September 27 Hogs and Pigs report. The report estimated market-ready hogs would run 3.5% over last year form September to October.
However, this is simply not what we are seeing.
Allendale expects +2.6 million head kills the week before Thanksgiving and the week after. We still expect the Lean Hog Index to slowly drop down to $58 by the time December futures expire. Previously, we expected a sharp break in the LHI to sub-$52 during November then a rebound to $58 in December. Our goal was to buy a sharp dip in prices at the worst of the peak supply.
Though there is still a high pork output, cash hogs fell for the week. This makes three weeks in a row cash hog prices fell.
China’s African Swine Fever outbreak is catching the attention of commodity markets as well. Although, Allendale does not expect the U.S. to send any pork to China given tariff issues. Some believe China will import more from our competitors. This would open up the market for us to sell extra to some of their buyers. There is no specific evidence of extra pork sales, but it does remain a possibility.
Currently, year-to-date sales are only 4.4% over last year. This is still under USDA’s whole-year goal of a 6.3% increase.
Low Point, Bright Future
Though the fourth quarter of the year is not typically one producers look forward to, the worst may already be over.
“I think we’ve probably seen our low for the year,” said Steve Meyer, economist with Kerns and Associates. “We are seeing lower slaughter numbers than we expected, and it looks like Mexico may be back in the ham market.”
Additionally, the tariffs have not had the negative impact we originally anticipated. Exports are up for the year despite the bleak expectations we previously had.
There has also not been as many hogs as previously thought. This is most likely due to the PRRS losses the industry incurred last spring.
Lee Schulz, Extension livestock marketing economist at Iowa State University, said prices over the fourth quarter will average between $53 and $57 per hundredweight, with prices in the low $60s over the first quarter of 2019. Prices should average around $70 over the second and third quarters.
Schulz also stated many hogs are already hedged, minimizing losses for some producers. Feed costs are expected to remain low as well. There may be a few times this summer where packer capacity could be challenged.
Meyer said even with low prices, expansion plans are moving forward.
“The futures market next summer has prices around $80, so that is saying you shouldn’t slow down,” he says. “There is certainly a hedging opportunity there to lock in prices.”
However, several factors will impact this. Trade issues and export markets will have large effects. NAFTA looks promising for pork producers and the Mexican export market is going upward. Oppositely, competing meats could have a negative effect. Beef production is up and poultry production is growing.
Read more related article from Ag Nook including:
“African Swine Fever Draws More and More Attention”
Additionally, “Should We Be Bullish on Corn?“.
Summary
Cash hog prices have fallen for the past few weeks. However, we may have seen the worst. The fourth quarter presents some hope for hog producers.
