Hog slaughter during the first three weeks of July averaged about 8.8 percent under comparable year-ago rates, thereby providing considerable support for those anticipating the 8 to 10 percent annual reductions forecast by industry insiders. However, last week’s total fell ‘just’ 6.4 percent annually, which was more in line with the results of the June USDA Hogs & Pigs report.
The latest weekly reports on Iowa-Southern Minnesota hog receipts and weights have also indicated a substantial decline in hog sizes. Weights fell 1.8 pounds, to 283.7 pounds/head, during the past two weeks. Actually, such losses are rather common at this time of year, especially if temperatures surge. Moderate weather has dominated lately, but producers are probably responding to bearish CME signals. Recent Chicago losses have pushed nearby futures far below the latest spot quotes, thereby implicitly telling farmers to move their hogs more quickly.
We believe the ongoing price breakdown at least partially reflects reduced demand in the wake of the anticipatory buying seen in June and early July. But we also suspect the industry now thinks forthcoming slaughter totals will exceed prior expectations. The June hog report implied late-summer supplies 4 percent under year-ago, but traders stuck with prior forecasts for 8 percent-10 percent August reductions. Recent kills and the price breakdown now suggest expectations are around 6 percent under those from last year.
We remain concerned about the downside potential facing hog and pork prices in late 2014, so we strongly favor keeping fourth-quarter hedges in place. However, the size of the discount already built into the expiring August contract has persuaded us to lift third-quarter hedges at this juncture.
Editor’s Note: Dan Vaught is a livestock economist for Doane Advisory Services, St. Louis, Mo. Doane distributes a number of timely, relevant newsletters to farmers that contain expert commentaries and market advice. For more information, call 314.569.2700 or go to: www.Doane.com.