Hog futures prices appeared to be bottoming out this week, but at very low levels, according to Doane’s Agricultural Report. Futures have been falling steadily for the last two weeks with the October contract losing more than $7. The bottoming action in futures late this week seemed to be more of a technical bounce, fueled by short covering and profit taking.
The collapse in cash hog prices continued even as hog futures turned up. A major collapse in cutout values was a key factor in the cash weakness. The cutout value was near $66.50 in the middle of last week, but is now below $60 and may be headed still lower. Packers’ margins are still positive, but with the margins shrinking, buyers are backing away from the market. Several plants have cut back on slaughter.
Even with the recent decline in corn prices, hog producers are still losing money because of the drop in cash. The real problem seems to be on the demand side since hog slaughter and pork production are both down compared to last year. Signs suggest some improvement in the U.S. economy in the second half of the year, but with the seasonal increase in hog supplies not far off, the hopes for profits for hog producers are waning.
Meanwhile, a “cool” 2009 is shaping up most like 1965 and 2004 according to Doane’s. Significant portions of the corn, soybean and spring wheat crops were planted late to begin with, and “Growing Degree Days” (heat units) are well behind normal, preventing the late-planted crops from “catching up” to normal maturity and sustaining yield risk in the event of an early freeze.
Of the two years most closely resembling the combination of late planting and cool temperatures experienced so far this year 2004 actually delivered very good yields, a record yield for corn in fact.
“The parallels to 1965 and 2009 are quite amazing” according to Doane’s consultant, and there was an earlier than normal freeze that year (September 24-25) across the northern Plains and upper Midwest. It was even a year after a sunspot minimum (like this year) and also one in which we transitioned from La Niña conditions in the spring to El Niño conditions in the summer and fall.
Source: Doane’s Agricultural Report