Prices of both hogs and pork declined sharply in October, as pork supplies increased with accelerating seasonal slaughter numbers and skyrocketing hog weights. The October price of live equivalent 51-52 percent lean hogs was $52.14 per cwt. While more than 39 percent higher than in October 2009, hog prices last month were 13.6 below prices in September, almost double the average 6-7 percent September- October dropoff seen in recent years.

On the pork side, the wholesale carcass cutout in October was $79.91, almost 45 percent above a year earlier. But in recent years, the seasonal dropoff between the September and October cutout has averaged between 6-7 percent. This year, however, the October cutout fell almost 12 percent below wholesale prices in September.

While prices of hogs and pork typically decline as hog slaughter numbers increase to their annual fourth-quarter-highs, 2010 prices of hogs and pork fell more sharply than in recent years. This could be due in part to two factors: first, on the supplyside, live and dressed weights of hogs in October were much higher than expected. Second, on the demand side, prices of pork bellies peaked in mid-September and declined through October, pushing the USDA wholesale pork cutout down.

With respect to hog dressed weights, estimated average daily carcass weights in October 2010 were 4 pounds heavier than average daily weights a year ago and 5.3 pounds above the 3-year average. Estimated carcass daily weights in October, which averaged 207 pounds for the month, were 5pounds heavier than average federally inspected dressed weights in September. The figure below shows the wide positive October gap between estimated daily average carcass weights this year and 2009 and the 3-year average.

While it is impossible to pinpoint the cause(s) of heavier weights with precision, there is strong anecdotal evidence to suggest that feed quality and weather contributed to heavier animals in October. To the extent that last year’s corn crop was of poorer nutritional quality, switching to feeding with new-crop corn has probably accelerated weight gains that typically come about as the weather turns cooler in the fall. Thus, the switch to new-crop corn in hog rations combined with cooler temperatures likely created conditions that supported weight gains. On the flip-side however, heavier weights and resulting larger pork supplies probably contributed to lower pork and hog prices in October.

USDA lowered fourth-quarter prices of 51-52 percent lean hogs to $50-$52 per cwt, down from $53-$55 per cwt last month. The fourth-quarter pork production forecast was increased 73 million pounds to 5.925 billion pounds, based on higher average dressed weights.

The major challenge—and source of uncertainty—for the U.S. pork industry in moving forward is higher feed costs and how the U.S. industry will adjust to them. Producer returns calculated with USDA forecasts of feed and hog prices show a decline from October, but still-positive returns through 2011.

It is more than likely that 2011 will be a year in which the industry struggles to acclimate to higher feed costs, without much attention to expansion. Minimally positive farrowings next year, along with higher dressed weights resulting from better nutritional values in new-crop corn, are expected to put commercial pork production next year at 22.6 billion pounds, an increase of 1.5 percent over this year.

The slightly higher production increase anticipated next year, compared with last month’s production forecast, is a result of higher expected average dressed weights offsetting slightly lowered forecasts of farrowings in 2011.

By Rachel J. Johnson, USDA - ERS