Fall is now in the air, and hog slaughter's seasonal increase is on track. The question that remains is how will it effect prices?
"During the last 10 years prices have generally declined from Labor Day to Thanksgiving and this year should be no exception," says John Lawrence, Iowa State University agricultural economist. "Demand for pork has remained strong as supplies and prices both are running higher than a year ago."
Year-to-date supplies have been 3.9 percent higher than in 2003, yet prices in early September were 28 percent higher than the previous year. The third quarter marks the forth consecutive quarter in which supplies and prices both increased. "This has only happen in two other quarters in the previous 30 years," notes Lawrence.
Twenty of 2004's the first 35 weeks had record hog slaughter, and record weeks likely lie ahead, he adds.
"We could have weeks with more than 2.2 million head, which may tax slaughter capacity," says Lawrence. He points to a week in 2003 which slaughtered 2.245 million hogs, "so plants are capable of this volume. But several weeks in a row with more than 2.2 million will be a challenge for the plants, and a bigger challenge to move that amount of product."
The key is product demand. If it holds strong enough to keep product moving through the supply chain prices will weaken– because of large supplies– but not collapse. "If demand weakens and pork is slow to move through, retail prices may weaken dramatically," cautions Lawrence.
Fourth-quarter 2003 prices for live hogs averaged $38.13 per hundredweight. If prices can hold on to rates 28 percent higher, prices would average $48.80 per hundredweight. That's optimistic. "Basis-adjusted futures are predicting prices between those two price points," he notes. Early October prices could be approximately $49 per hundredweight, with $43 in December.
Of course, USDA's September Hogs and Pigs Report, released on Sept. 24, will provide a more insight into what lies ahead for 2005.
Source: Iowa State University/ Iowa Farm Outlook Newsletter/ John Lawrence