CattleNetwork.com, KS
01-31-07
FOCUS: Hog Weights Aren't Dropping As Fast As Expected
KANSAS CITY (Dow Jones)--Average hog weights have been below year-ago
levels for more than four months in reaction to sharply higher corn prices, but the
weights are not dropping as fast as some market analysts and other sources had
expected.
There are several factors that appear to be contributing to the relatively small
declines so far, even though corn prices -- and therefore feed costs are up
dramatically.
Skyrocketing corn prices due to expanded demand from the ethanol industry are
causing feed costs to rise accordingly, to the point where many hog operations
are expected to lose money in 2007 after enjoying nearly three years of
profitability.
Corn prices at the Chicago Board of Trade rose over 70% in 2006 and in midJanuary topped $4 a bushel for the most-active March contract when the U.S.
Department of Agriculture said the size of the 2006 corn harvest was 10.535
billion bushels versus 11.112 billion bushels. March corn closed Tuesday at
$4.04 1/2 per bushel, compared with $2.59 1/2 a year ago
High feed costs could cause the independent hog producer group to trim weights
quicker than the packer-owned operations or those that contract produce for a
packer, according to market analysts and industry sources. However, modern
production systems are not conducive for rapid changes in the flow of pigs to and
through the facilities, the sources said. So, it takes a longer time to make
adjustments up and down the entire system to balance the numbers of pigs
moving in and out of the growing and finishing barns.
When producers' margins are thin or turn red, the first step is usually to sell their
animals a few days earlier than normal, which saves feed and brings
average weights down. That may work for certain production systems that have
the flexibility to do so but not as well for others, the sources said.
Bob Brown, a private analyst based in Edmond, Okla., said his calculations he
has done showed the independent producer group has already reduced weights
some against the five-year average but not as much as one might expect given
the dramatic rise in feed costs, he said.
For example, in early August before corn prices began their rapid advance, the
average weight in the independent producer group was about 3.0 pounds above
the five-year average. While the spread from the current year to the five-year
average has declined since then, it has dropped by only about 1.5 pounds, so it
remains about 1.5 above the five-year line.
Brown calculates weekly hog weights and compares the latest figures to the fiveyear average.
Gregory Wagner, director of marketing and risk management with Horizon Ag
Strategies in Chicago said corn prices could move even higher from the current
levels over the next 90 days, which would increase costs and concerns for hog
and other livestock and poultry producers. "There will be no shortage of extreme
circumstances this year," Wagner said.
David Stender, swine specialist with Iowa State University, said "if the cost of
gain drops below the market price, we will see weights drop precipitously."
However, that has not occurred yet.
Stender said the main response he has seen from producers so far has been
closer sorting and selling the hogs that have reached slaughter weights
earlier, even if it means shipping part loads rather than waiting to get a full load at
a time. "Extra heavy hogs are no longer a financially viable option
depending on the (marketing) grid," he said. "Historically the hog market has
always responded to high corn price, but today (it) is much more inflexible in
adjusting hog numbers."
The vertically integrated producers -- those that are packer-owned or whose
shipping schedules are controlled by the packer -- may not reduce weights as
much as other operations, sources said. That is because the packer will look
what is financially best for the production and the processing system as a whole.
If the plants need certain size hogs for processing the pork cuts and to meet
customers' requirements, the hog production units will be instructed to feed the
animals to the desired weights, the sources said.
Industry sources say that so far, there have been no changes to packers' pricing
grids. Weights overall have not changed enough to warrant any adjustments in
the brackets or discounts for light hogs, they said.
Source: Curt Thacker; Dow Jones Newswires; 913-322-5178