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Hog production needs to be reduced, not increased
Hog Outlook
Glenn Grimes & Ron Plain
University of Missouri - Columbia

The futures market for corn is pointing to substantially higher feed prices in the next 20 months. The December corn futures for this year in mid-week was at $2.83 per bushel. For the December 2007 contract the futures for corn was trading at $3.08 per bushel.

Certainly cash corn in the Corn Belt is likely to be some below the futures, but if the current futures prices do come true - with the current energy bill - the odds favor increased cash corn prices. The increased cost of producing hogs may hit at the same time that hog prices will be relatively low due to large production.

We need to reduce hog production in the next year but with the hog profits of the past two years, the odds favor some growth rather than reduction during the next year.

The news continues to be good as to pork trade. For January-March, pork exports in 2006 have been up 22.2 percent from a year earlier.

For March, pork exports were a record monthly high up 23 percent from a year earlier and up 12.5 percent from the previous monthly high set in February of 2006. We have had three months with 10 percent net export of production: April of 2005 and February and March of 2006.

For January-March of 2006, net pork exports as a percent of production was at 9.6 percent up 2.1 percentage points from a year earlier.

Our number one market for pork, Japan, is down 7.8 percent in their purchases of pork so far this year, but Canada is up 9.2 percent, Mexico up 38.4 percent, Russia up 147.7 percent, South Korea up 69.2 percent, Mainland China and Hong Kong up 50.1 percent, China Taiwan up 71.9 percent, Caribbean up 37.9 percent, and other up 33.6 percent.

Our exports of pork are now important enough to have a big impact on prices if we lost all of the exports due to some disease outbreak such as Hoof and Mouth disease. The impact on price would be quite large. Somewhere between 30 and 50 percent depending on what happened to our imports of pork.

In fact, Japan is going to test more for certain drug residues in the future. If they were to find a load of pork with more residue than their specifications and stopped buying pork completely from us, it would reduce our pork exports over 30 percent. This would probably reduce our hog prices by around 15 percent from what they would have been without the disruption in exports.

Retail pork prices in April were up 1.2 percent from March but down 1.9 percent from April of 2005. For January-April, retail pork prices were 1.9 percent below a year earlier.

Marketing margins for January-April were 6 percent higher than in 2005. Both the packer and retail-processor margins were up in 2006 compared to 2005.

Cash hog prices were very erratic in early week but ended the week close to seven days earlier.

Live prices Friday morning were steady to $1 higher compared to seven days earlier. Weighted average carcass prices were mixed compared to a week earlier.

The top live prices for Friday morning for select markets were: Peoria $45 per cwt., St. Paul $49 per cwt., Sioux Falls $49 per cwt. and interior Missouri $47.75 per cwt.

The carcass prices for negotiated hogs by area were: western Corn Belt $66.95, eastern Corn Belt $66.37, Iowa-Minnesota $67.31 and Nation $66.70 per cwt.

Slaughter this week was estimated at 1,945,000 head under Federal Inspection, up 1.4 percent from a year earlier.

This farm news was published in the May 24, 2006 issue of Farm World.

5/24/2006