Lower pork slaughter, higher hog prices

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For the fourth quarter of 2013 and for 2013 in total, the U.S. pork sector has shown strong increases in year-over-year hog prices in response to relatively small yearover- year reductions in hog slaughter.

USDA is forecasting fourth-quarter commercial pork production at 6.3 billion pounds, a volume almost 1 percent greater than a year ago. This forecast is based on a 1.4 percent lower projected commercial hog slaughter. Lower forecast fourth-quarter slaughter is expected to be more than offset by 2.4 percent year-over-year higher average dressed weights. Fourth-quarter prices of live equivalent 51-52 percent lean hogs are expected to average $62-$63 per cwt, almost 7 percent above prices a year ago.

The same situation is shaping-up for 2013: total commercial pork production in 2013 is expected to be 23.1 billion pounds, almost 0.5 percent below production in 2012. This forecast is based on year-over-year lower (almost 1 percent) estimated commercial slaughter numbers. Small changes in slaughter numbers are expected to elevate average hogs prices to $64.40 per cwt, almost 6 percent above 2012.

For hogs, analyses of extended time series of price and quantity data suggest that demand for hogs is price-inelastic, i.e., small reductions in hog slaughter numbers bring about proportionally larger increases in hog prices. This theoretical idea is being validated in 2013 hog markets.

Strong domestic demand may also be contributing to higher hog prices. Retail prices for 2013 have been setting records since the first half of 2013, at the same time that pork disappearance is expected to average almost 3 percent above the same period in 2012. Disappearance is a calculated aggregate equal to the sum of pork production and beginning stocks and imports, less exports and ending stocks.

In effect, disappearance is the volume of pork products available to the domestic U.S. market. Although not all pork contained in the disappearance aggregate is sold at the retail level, the fact that U.S. consumers are willing to pay record-high prices at retail for larger quantities of available pork products suggests that second-half 2013 pork demand has increased. Increased pork demand is likely due, in part, to record-high beef prices.

With USDA retail beef prices forecast in the high $5.30s per pound in the fourth quarter, and the high $5.20s per pound for all of 2013, it is likely that some U.S. consumers are substituting lower priced pork in place of beef, thus bidding up retail pork prices to record levels. USDA is forecasting retail pork prices in the mid-to-high $3.70s per pound for the fourth quarter of 2013 and in the low-$3.60s for the entire year.

For next year, commercial pork production is forecast at 23.9 billion pounds, an increase of more than 3 percent over 2013. Larger production is expected to weigh on hog prices. Hog prices are expected to average $59-$63 per cwt in 2014, more than 5 percent below prices this year. With 2014 U.S. pork exports forecast at 5.18 billion pounds, domestic disappearance is expected to be more than 2 percent higher than in 2013. Retail pork prices next year are expected to be record-high, in the mid-$3.80s per pound.

A source of significant risk in the U.S. pork industry at present, and moving into 2014, is Porcine Epidemic Diarrhea (PED). The website of the American Association of Swine Veterinarians (http://www.aasv.org/) describes the disease as follows:

Introduction of PED virus into a naïve herd typically results in acute outbreaks of severe diarrhea, vomiting, high morbidity (often 100%) and variable mortality (as high as 100% in young pigs). The incubation period is short (2 - 4 days) and natural immunity develops over two to three weeks, resulting in colostral protection for neonatal piglets. The virus spreads via the fecal-oral route and fomites….PEDV is not a listed disease of the World Organization for Animal Health (OIE); is not considered a foreign animal disease in the United States; and there are currently no interstate trade restrictions pertaining to PEDV in U.S. swine. It is not a zoonotic disease, does not affect people, and is not a food safety concern.

The Quarterly Hogs and Pigs report, to be released by USDA on December 27 may help to discern the effects of the disease as of December 1, 2013.



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