CattleNetwork.com, KS
10-28-06
US Hog Producer Profitability At Doorstep Of New Record
KANSAS CITY (Dow Jones)--With October soon drawing to a close, U.S. pork
producers have enjoyed the 33rd consecutive month of profitability, which ties a
27-year-old record set from December 1976 through August 1979, and market
signals currently point to a new record in November.
Key market indicators that support predictions that cash hog prices will remain
profitable for average-cost producers include expanded hog processing capacity
this year and December lean hog futures that closed Friday at 64.60 cents per
pound.
That was up 12 points on the day and 5.25 cents higher on the week. Also, a
gain of 9% in year-to-date export sales for pork and pork variety meats through
August contributed to support.
The most recent calculations of the break-even level for hog producers
conducted by John Lawrence, agricultural economist at Iowa State
University, was at $39.04 per hundredweight on a live basis.
This calculation was for farrow-to-finish operations and based on hogs that were
shipped from the farms in September. That figure converts to about $52.00 on a
dressed basis.
December futures hit a 6 1/2-week high Friday and closed at the highest level
since Sept. 12, which indicates that futures traders are confident that cash prices
will not fall significantly in November, according to market analysts and industry
sources.
An informal survey of market analysts conducted by Dow Jones Newswires for
their views on whether cash hog prices in November will remain profitable for
producers revealed an average confidence rating of 84%.
Glenn Grimes, agricultural economist at the University of Missouri, said higher
corn prices will raise the break-even cost of production for hogs that will be
shipped to slaughter in November and December.
Rising corn prices could push the break-even cost up by about $2 per
hundredweight by December, but the odds are high that producers will still make
money through the end of this year, he said.
Mike Zuzolo, analyst with Risk Management Commodities Inc. of Lafayette, Ind.,
gave an 85% probability rating for prices to remain profitable. He said downside
risks for hog prices include the possibility of another sharp leg-up in corn prices,
a severe slowing of the economy, or a decline in demand for U.S. meats from
emerging nations.
Dan Vaught, analyst with A.G. Edwards and Sons in St. Louis, suspects that the
industry has pulled some hogs forward based on average weights in
Iowa/southern Minnesota during the past three weeks that have held below the
year-ago levels.
He predicts that the Chicago Mercantile Exchange's two-day lean hog index will
likely remain above 60 cents per pound, but if its does slip below that level, it
would only do so for a short period.
Cash prices at their lowest levels in the month of November should still remain
above producers' break-evens by at least $2 per hundredweight on a live basis,
said Rich Nelson, analyst with Allendale Inc., based in McHenry, Ill.
While hog producers have enjoyed an extensive period of profitable prices, there
is much concern about what higher corn prices could mean for the industry in the
years ahead, analysts and other sources said.
CATTLE/HOG SLAUGHTERS
The USDA estimated this week's cattle slaughter at 652,000 head, compared
with 639,000 a week ago and 630,000 a year ago. Year-to-date cattle slaughter
is 27.447 million head, up 3.7% from 26.463 million a year ago.
This week's hog slaughter was estimated at 2.182 million head, compared with
2.213 million last week and 2.152 million a year ago. Year-to-date hog slaughter
is estimated at 84.663 million head, up 0.9% from the year-ago figure of 83.929
million.
TOTAL MEAT PRODUCTION
The USDA estimated total beef, pork and lamb production for the week at 953.0
million pounds, the second largest of the year. Last week's output was 948.5
million, and the year-ago figure was 928.4 million pounds. Year-to-date combined
meat output is 38.593 billion pounds, up 3.7% from a year ago.
Broiler/fryer slaughter this week was estimated at 164.361 million head,
compared with 165.595 million a week ago and 164.585 million a year ago.
-By Curt Thacker; Dow Jones Newswires; 913-322-5178;
curt.thacker@dowjones.com