With larger anticipated fall-quarter hog numbers just around the corner, U.S. hog prices have tailed-off steadily since reaching a record-high of $79.33 per cwt in early August according to the USDA's Livestock, Dairy and Poultry report. At the same time, cash prices of corn in Iowa, the largest hog producing State in the country, have traded in the high $6 to low $7 per bushel range since mid-July.
Declining output prices, concurrent with increasing costs of major feed inputs, spell narrower spreads between the cost of feed and the selling price of finished hogs. While producers’ estimated quarterly feed cost spreads remain positive through 2012—calculated with USDA forecast prices of corn, soybean meal and hogs—spreads will narrow for the fourth quarter of 2011, and spreads for the first three quarters of 2012 are below those of 2011.
Hog producers are likely to respond to lower feeding spreads by reducing the weights at which they market hogs for slaughter. However, packer discounts for underweight animals are likely to limit producer incentives to reduce slaughter weights too sharply. USDA is reflecting expectations for narrowing feed spreads in lower year-over-year estimated average dressed weights for the second half of 2011
and into 2012.
Third-quarter commercial pork production is expected to be nearly 5.5 billion pounds, about 1 percent higher than a year ago. Fourth-quarter pork production is anticipated to be 6.1 billion pounds, about 1 percent below the same period last year. Prices for live equivalent 51-52 percent hogs are expected to average $70-$71 per cwt in the third quarter, about 17 percent above a year ago. Fourth-quarter prices are expected to be $60-$64 per cwt, almost 24 percent above the same period last year.