“I don’t think prices will drop that low again,” was a common thread as many in the industry analyzed the potential of a return trip to fourth-quarter 1998 price levels this fall.
Some time has passed since the market whipsaw of late August and early September when live-hog prices dropped to their lowest level since 1971. Weekly hog slaughter hit 2.01 million head. That wasn’t supposed to happen so early in the season.
Producers without marketing contracts were getting bids of $15 to $17 per hundredweight for their hogs – if they were getting bids at all.
It’s possible that you heeded the warnings, and pulled hogs ahead. But market-hog weights in that August/September period only served to cloud the picture. In some markets, hog weights declined slightly. In others, weights remained on the high side.
Hog slaughter during the last three weeks of August exceeded 2001 levels by 8.2 percent. That’s a lot of hogs to attribute to early marketings.
USDA’s pig crop reports have shown a pattern of underestimating hog numbers for most of the year. As you read this, you will know the outcome of the September Hogs and Pigs Report. It may clear the air, but there’s little reason to believe that the numbers will suddenly align.
“Perhaps it was the bottom,” said more than one producer referring to the August/September price decline.
Ah, there’s that optimism that keeps farmers going day in and day out.
The thing is, the largest slaughter runs of the year almost always come in October or November, which means there’s more price pressure ahead.
With the many and varied packer contracts, it’s hard to get a handle on the actual price any given producer receives. When the cash market offered $20 per hundredweight, some producers took home $24 to $37.
In a way, we’re splitting hairs about how hog prices will unfold. Rising feed-grain costs moot the impact of hog prices. Chris Hurt, Purdue University agricultural economist, projects that production costs could rise to $40 per hundredweight. Even if the most optimistic fourth-quarter average price – $30 per hundredweight – develops, that falls short by $25 for a 250-pound pig. If the worse case develops – an average of $15 – losses jump to $62 a head. In fall 1998, losses averaged $45 per pig.
It was true in the fall of 1998, and it’s even more true today that pork producers not aligned with a packer will get hurt the most when hog supplies burden capacity.
It’s also true that slaughter numbers and packer capacity hold the key. USDA’s June pig crop report suggests a 2 percent to 3 percent increase in fall marketings over 2001 levels. Given the slaughter patterns and large Canadian hog imports, marketings could run 3 percent to 5 percent higher than in 2001.
If fall marketings exceed 2001 by 4 percent, commercial hog slaughter will hit 27.53 million. In the fall of 1998, slaughter totaled 27.59 million. Packer capacity is in nearly the same shape today. Hormel will stop killing hogs at its Rochelle, Ill., plant in November. The 4,500-head daily slaughter is not monumental unless you’re desperate for capacity.
You can expect to return to the slippery slope seen this year and in 1998 unless fundamental changes in practice and philosophy occur.
Sen. Chuck Grassley (R-Iowa) has introduced a bill that would require packers to buy 25 percent of their hogs in the cash market. That’s not an answer. If he wants to do something constructive, he should focus on getting packing plants built. That’s also in your best long-term interests – a topic on which producers have been far too quiet.
Sow liquidation appears to be occurring, but at best you’ll see the results by next June. Then the cycle will begin again. Improved communication and coordination within the pork-supply chain also is a must if profitability is to be part of your long-term future.
With productivity continuing to rise, 1998 price levels could easily repeat unless there’s a change in packer capacity and industry’s ability to communicate and coordinate live-hog supplies with demand.