HOG SITUATION & OUTLOOK

So far this year, hog prices have been following their normal seasonal pattern. The early spring slaughter hog price rally happened right on schedule in early April this year in contrast to 2012 when the upswing was delayed by two months. So far in 2013, U.S. pork production has been in-line with expectations, but hog prices have been a bit disappointing. Slaughter hog prices have been capped by even more challenging than forecast pork export markets. Prices in the first quarter of this year prices averaged below a year ago (down about 4%), however, the second quarter will be above 2012’s in the range of 2% to 4%.

Commercial U.S, hog slaughter in the first half of 2013 is projected to be just over 54.7 million head, essentially unchanged from a year ago. Dressed weights have declined year-on-year due to very high feedstuff costs, assisted to some extent by the shift away from the use of ractopamine by one major firm (Smithfield). So, for the first six months of 2013 U.S. pork production declined very modestly (down 0.7%). However, lower U.S. production did not translate into less pork disappearance per person in the U.S. due to declining tonnage exported -- in fact, the domestic market had to absorb over 3% more per pork person than last year.

The latest monthly carcass equivalent export data (released by USDA’s Economic Research Service on June 5th) showed U.S. pork export tonnage for April was 397 million pounds, down 12% from 2012’s and the smallest for any month since July 2011. Compared to a year earlier, exports to Russia and China were down 99% and 43%, respectively.

Forecasts call for rather modest year-on-year increases in U.S. hog slaughter and weights in the second half of this year. Even that gain means U.S. pork production will be record large in the fourth quarter of this year. Exports could continue to lag year ago levels at least for several more months depending on any resolution to ractopamine issues and economic growth in Asian countries. For the balance of 2013 the growth in U.S. pork output and then some will likely have to be absorbed by domestic consumers.

So, as the second half of 2013 unfolds, slaughter hog prices are forecast to creep down and closer to a year ago. Fortunately for hog producer profitability, there is hope that feedstuff costs will moderate with the new crop produced this year and buffer the decline in hog prices during the fourth quarter.