One factor that apparently supported the hog and pork complex through late 2012 and early 2013 was a relatively tight supply of market-ready animals.
The best indicator of that came from the Iowa-Southern Minnesota market, where weekly weight reports indicated that barrows and gilts had averaged slightly below comparable year-ago readings since mid-September. However, that changed in late February, when the result, at 276.2 pounds/head, topped its week- and year-prior counterparts by 0.9 and 0.4 pounds/head, respectively.
This does not mean the market will be swamped with swine during late winter, but this development suggests current supplies are fairly plentiful. On the other hand, hog slaughter typically declines substantially through late winter and spring, with the diminished production playing a big role in the traditional second-quarter rally.
As pointed out in the past, the hog and pork complex suffered a surprisingly extended decline during late winter and early spring last year. A portion of that weakness stemmed from cattle and beef losses, and to the controversy over finely ground meat products or ‘pink slime’. Hopefully, the industry won’t have to deal with a similar disruption this year, but trouble may be coming on a different front.
That is, it looks increasingly as if the Federal government will not avoid temporary layoffs stemming from the spending sequester set to begin March 1. That will reportedly entail temporary furloughs of USDA meat inspectors mandatory for U.S. packing industry operations. If packers are forced to close their plants for a day each week of the March-May quarter (as has been suggested by some sources), the resulting reduction in demand for livestock and poultry might cause animals to back up on farms. This clearly represents a threat to the price outlook. Nevertheless, the ultimate effect of this situation may not be as bad as some suggest.
We are cautiously optimistic about late winter-early spring hog prospects, due in part to the recent rebound in beef prices. That may simply reflect production cuts caused by the winter storms that blanketed the Central U.S. in late February, but we suspect the sustained red meat losses suffered at that time finally sparked a demand response from grocers. If so, higher beef prices may give pork values room to rise as well. Sustained pork complex gains are critical to hopes for March-April hog market strength. Later, dwindling second quarter hog and pork production will be met by surging demand as the grilling season hits its stride, thereby likely driving prices to their annual highs in the May-June period.