2007 U.S. hog price high is in, analysts say
Unless the U.S. industry sees a stronger live-hog demand, the high in the market may be in for 2007, analysts said. However, trade rumors of China interest in U.S. pork underpins the futures market.
On June 26, the lean hog index peaked at $78.49 per hundredweight, but since has dropped sharply to around $70. 10.
Seasonally, the hog market dips in the summer. However, the downtrend may last longer than last year, analysts said.
Dan Vaught, AG Edwards, said there could be no turning back, for this year, on higher hog prices.
"We may see lower slaughter weights in July and August, a market-positive. But, unless the talk of China's interest in buying added U.S. pork, I have doubts about the market being able to come back and match that late June high," Vaught said.
Because of the ongoing pork shortage in China, officials may look to the export market to supplement domestic supplies, according to a media report.
China has reportedly bought 20,000 metric tons of pork in recent weeks and may buy another 80,000 metric tons during the coming weeks and months, Vaught stated in a daily commentary.
"Traders evidently interpreted the story as applying to only U.S. pork, but later reports suggested the Chinese were looking at several international sources," Vaught stated.
If China purchases hog carcasses, which average roughly 200 pounds/head, the 20,000-metric ton figure would be equivalent to about 220,000 hogs. Thatâ€™s a bit over half of a single-dayâ€™s kill here in the U.S.
"The China purchases wouldn't be a shock to our system, but it would be a boost to the market," Vaught said.
Ron Plain, University of Missouri livestock economist, said the China purchases have given a boost to the hog futures prices.
"The August and October contracts are trading at or higher than the July contract," Plain said. "That's most unusual. "This China talk is helping out. With pork being the most important meat to the Chinese, there is reason to believe this increased trade is possible."
In recent years, China's economy has done quite well, resulting in extra income for consumers to switch to a higher protein diet.
In addition, though the China hog industry has grown rapidly, higher feed costs and a devastating 'blue-ear' disease, have caused fits and starts for some producers.
Because its consumers are used to a very fresh-meat market, a boost in China purchases of U.S. frozen pork could see a short-term dip and then a jump back up.
"The Chinese will process the hogs at night and bring that pork into the market within 24 hours and as soon as 12," Plain said. "So, it might take the China consumer awhile to get used to the frozen product."
FALL MARKET LOW
Plain sees the hog market dipping to $52.00-$53.00 per hundred weight in the fall.
"Overall for the fourth quarter, our forecast is for an average of $59.00 on a carcass weight basis. That's not too unpleasant, below break-even, but not too worrisome," Plain said.