I guess we need a few more "bearish" Hogs & Pigs Reports to stimulate this hog market. Go figure.
Last Friday's report had every year-over-year number larger than the average of market analysts' pre-report estimates (except those dealing with farrowing intentions). And Chicago Mercantile Exchange (CME) Lean Hog Futures have been up every day but one, with the October and December contracts gaining $0.825 and $0.725, respectively, today.
It is apparent that the guys actually putting dollars into this market had slightly different expectations than did the surveyed analysts. It doesn't mean either group is wrong. It just sends people like me who draw conclusions from the actual vs. expected numbers a clear signal to be a bit careful.
Perhaps a more important result of this exercise, though, is the lower farrowing intentions have driven July 2007 CME Lean Hogs futures to a new contract life high, carrying other spring and summer contracts to very near contract life highs as well. Should those highs be eclipsed, producers should watch for topping signs to make some sale of 2007 production.
The next eight contracts on the board have an average price of $64.93 as of Thursday's close. The rally in corn prices has taken some luster off of those hog futures prices, but they still offer profit margins for average or better producers.
Sow Slaughter Mystery Remains
The mystery of higher U.S. sow slaughter in the presence of a growing sow herd and gilt retention rates that, according to the University of Missouri data, are insufficient to balance the equation, continues. National Hog Farmer Editor Dale Miller told me this week of a possible explanation that he had heard -- increased imports of breeding gilts from Canada. That would certainly do the trick if such imports have been large enough.
As can be seen in Figure 1, imports of breeding gilts from Canada are quite variable from week to week. The vertical lines have been inserted in the graph to help the reader clearly see the years being presented.
While it's a thought worth checking into, it doesn't look as if it is an explanation for higher U.S. sow slaughter. From Jan. 1 through Sept. 23 of this year, 69,831 breeding gilts have been imported from Canada. That's an increase of just 1,022 head or 1.5% from the same time period in 2005.
Since the increase in U.S. sow slaughter did not actually begin until the week of March 12, I did the same computations for March 12 through Sept. 23. The results: 55,785 this year -- 1,264 or 2.3% more than last year.
Neither of those numbers is large enough to explain the increase of sow slaughter that has numbered 6,000 head in some weeks. It still looks like something fundamental has changed in the dynamics of the U.S. breeding herd. I still get mixed reactions to the "smaller death loss" idea, but I suspect that the shift is due to a combination of factors with lower death loss and higher turnover due to gilt productivity leading the way.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com