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Ethanol industry growth means hog producers should plan for $3 corn
Hog Outlook
Glenn Grimes & Ron Plain
University of Missouri - Columbia

Cash hog prices came under substantial pressure this week as packers made an attempt to improve their margin. Top live prices this Friday morning were $2.75 to $5 per cwt. lower than seven days earlier. Average weighted negotiated carcass priced hogs this Friday morning were $1.04 higher to $2.26 per cwt. lower than a week earlier.

The top live prices this Friday morning for select markets were: Peoria $42 per cwt., St. Paul $43 per cwt. and interior Missouri $44.50 per cwt.

The cutout value per cwt. of carcass on Thursday afternoon this week was up $114 per cwt. from a week earlier at $69.56 per cwt. The cutout prices for each wholesale cut on Thursday afternoon were: loins up $3.18 per cwt. from a week earlier at $80.99 per cwt., Boston butts at $76.07 up $0.66 per cwt. from seven days earlier, hams up $1.07 per cwt. from last week at $73.63 per cwt., and bellies unchanged from a week earlier at $77.03 per cwt.

Feeder pig prices this week at United Tel-o-Auction were mixed compared to two weeks earlier. Lightweight pigs were $5-6 per cwt. lower and heavier weights were $5-6 per cwt. higher than 14 days earlier.

Corn prices have been very erratic this week with high prices making new contract highs. Most observers believe hog producers will need to plan on cash corn prices near $3 per bushel in a couple of years because of the demand for corn from the ethanol industry.

With all other factors held constant, the industry will likely be required to downsize some to maintain profitability for the average cost producers.

If the long-term elasticity of demand for live hogs is close to the average of the past 10 years, the industry will need to reduce production 2-3 percent in order to cover the additional costs. However, if the elasticity of demand for the long run is close to the elasticity prior to 1994, the industry will need to downsize 5-7 percent.

Remember for each $0.50 per bushel increase in corn price the average producer’s costs will increase by about $2.50 per cwt. of live weight.

Sow slaughter continues to run some above a year earlier. For the four weeks ending September 30, sow slaughter was up 4 percent from 12 months earlier. For this same time-period, however, gilt slaughter was also up some from a year earlier.

Breeding stock imports from Canada are up, but only 2-3 percent from a year earlier. This data does not indicate producers are changing the breeding herd very much in either direction.

Slaughter this Friday set a new daily record high for one day at 425,000 under Federal Inspection. Slaughter this week under Federal Inspection was 2,166,000 head, up 2.2 percent from last year.

This farm news was published in the Oct. 18, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.

10/18/2006