Just how fast are producers responding to the worst economic conditions since price collapse of the ’98-99 – or perhaps ever? That has been a topic of widespread discussion these past few weeks.
For the first part of the ’98-99 time period, no one could give a definitive answer, because it was impossible to know exactly what was going on in Canada due to problems with the weekly import data. Those data are now better. Not perfect, but definitely better. And, they are probably good enough for us to conclude that Canada is indeed reducing their herd at a rather quick pace.
U.S. sow slaughter jumped to 73,000 head last week, 11.5% higher than one year ago (see Figure 1). At least one major sow-slaughtering firm worked Saturday.
Canadian slaughter has lagged with the week ending March 22 (the latest week for which data is available), down 22.6% from last year. It should be noted that the 22.65% drop involved only 700 fewer sows than last year, however. Canada just doesn’t process many sows. While the entire industry needs sow plants on both sides of the border to be operating at high throughput rates, the Canadian plants may not help much. The strong Canadian dollar has hurt their competitive position as well.
As slaughter has jumped, sow prices have plummeted in much the same fashion they did in January (see Figure 2). Light sows were quoted below $20/cwt., live, last week and there are reports of bids as low as $10/cwt. this week. Light sows are certainly not the choice of sausage manufacturers, as they generally do not carry enough fat to yield high quality product. Big sows – those at 500-lb. and over – are faring somewhat better with bids of just under $25/cwt., live, last week. But that price is $10/cwt. lower that just four weeks ago.
Why are sow prices tanking so quickly when offerings increase? There have been rumors that we just can’t handle the large number of sows coming to plants right now. The statement is reminiscent of the fall of 1998, when butcher hog plants were operating at maximum rates and hog prices were falling to record lows. Hog offerings were huge, packers simply could not push more through the plants and they could basically choose the price they wanted to pay for hogs that had to move off farms.
Though producers are almost desperate to get culled sows off the farm due to high feed costs, the situation in the sow market is somewhat different than the ’98 scenario. Figure 3 shows the results of my phone survey last fall regarding daily slaughter capacity of plants that process cull sows and boars. Note that USA Pork Products’ Hazellton, PA plant is generally not used for sow processing, so the capacity of sow plants is roughly 17,000/day.
A full, five-day week could handle 85,000 sows and any Saturday shifts would add to that weekly total. Therefore, I don’t think slaughter capacity has anything to do with the rapid declines in sow prices that we saw last week and back in January.
The better explanation is a mismatch between the pace of product movement and sow offerings. Pork sausage sales volume is relatively stable. It seems that people who eat sausage tend to eat it regularly, so there are not large ebbs and flows of sausage sales. Sales of dinner sausages, such as smoked sausage and bratwurst, tend to be more seasonal and really do not pick up until the weather warms and grills get fired up. This year’s cool, damp spring has delayed avid barbecuers and, thus, has also delayed dinner sausage and bratwurst sales. If product is not moving, sow processors are not very interested in processing more sows.
In addition, one must consider the nature of these sausage products. They are not fresh, generic pork products that we put on sale at attractive prices in order to move large volumes through retail outlets. Most of these sausage products are branded. The companies have invested years to build a quality image for these brands and price is one facet of quality in many consumers’ minds. Does it make sense to cut prices in order to slaughter a few more sows? What might such a move say about the quality image of the product?
It appears to me that sausage companies are going to buy just as many sows as they can efficiently process and sell as product. Some may take a chance on putting product in the freezer in anticipation of warmer weather at any time, but don’t expect much of that. Many of these sows are hot-boned in order to make plants more efficient and yield a product with proper texture for premium sausage products. Sow packers generally avoid putting product in freezers and certainly do not want large quantities of this product frozen.
The pace at which we can slaughter cull sows will be a key factor in determining how long these large supplies and low market hog prices will last. The introduction of circovirus vaccines created, almost overnight, something in the neighborhood of 6-8% too many sows in North America.
The only way to get back to profitability in the face of high costs is to reduce supplies, which can only be done by reducing the sow herd. Let’s hope spring weather arrives soon so sausage movement will increase and sausage manufacturers can ramp up their plants to full capacity.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.