Low Prices Cure Low Prices

There’s an old saying: “The best cure for low prices is low prices.” Hog prices dropped dramatically from mid-June to mid-September before rebounding. In that time span, hog carcass prices fell from above $100 per hundredweight to below $65 per hundredweight. By mid-October hog prices were back above $80 per hundredweight.

The price drop was primarily caused by a big jump in hog slaughter. September’s daily hog slaughter was 19 percent higher than in June. The October price rebound appears to have been tied to lower prices boosting pork demand rather than fewer hogs heading to market.  Two of the 10 largest slaughter weeks on record occurred in September and two occurred in October. 

Feed Costs Drive Herd Size

Record feed prices and large financial losses are causing pork producers to cut production.  USDA’s September inventory survey reported summer farrowings down 1.2 percent and predicted fall farrowings to drop 2.7 percent, with winter farrowings down 1.5 percent compared to a year earlier.  Only 2.821 million sows are expected to farrow this winter, the fewest of any quarter since winter 2002/2003. Because of more pigs per litter, this winter’s pig crop could be 15 percent larger than winter 2002/2003, but only 0.5 percent smaller than last winter.

Pork production increases are coming from more pigs per litter and heavier slaughter weights.  Although a seasonal farrowing pattern still exists, the historic four-year hog cycle is not readily evident.  In recent years, fast-rising feed costs have become a key driver of herd size.    

Gains in Production and Exports

USDA’s Foreign Agricultural Service has forecasted 2013 world meat production and trade.  Despite record feed costs, FAS expects world pork production to be up 0.3 percent and world pork trade to increase 1.4 percent. Chinese pork production is pegged to be up 1.2 percent and will account for all of the gain in world production. The rest of the nations are expected to decrease pork production 0.5 percent next year. 

The United States has been the world’s largest pork exporter since 2005 and is expected to be so again in 2013.  But the gap between the United States and No. 2 European Union is shrinking. FAS expects U.S. pork exports to increase by 20,000 metric tons in 2013.  It forecasts E.U. pork exports to increase by 95,000 tons.  Japan has been the No. 1 pork importing nation for more than 20 years.