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Hog market to root prices higher in 2010, analyst says

Agriculture.com Staff 07/28/2009 @ 11:54am

Following a 2009 herd liquidation of 5% due to higher production costs, U.S. hog producers can expect a return to profitability in 2010. The key to a higher hog market will depend largely on increased demand.

In 2009, hog producers fought through a decrease of demand brought on by the worldwide H1N1 flu-virus outbreak along with the economic recession.

In addition, hog operations underwent further liquidation following surging feed costs as corn and soymeal prices shot higher.

For this year's fourth quarter, that liquidation theme is expected to continue being reflected in a 2% drop in hog slaughter figures vs. a year ago, according to John Nalivka, President of Sterling Marketing Inc.

"The expected fourth quarter decrease was preceded by a hog liquidation trend that started in March 2008 with a breeding herd of 6.28 million sows. In June 2009, the breeding herd dropped 3% from a year ago to 5.97 million," Nalivka says.

Seasonally, fall hog supplies increase, following tightening numbers in the summer months. Because the industry continues to see a trend of larger integrated operations, with the ability to increase or reduce hog numbers quicker than ‘traditional' hog operations, that seasonal factor is being smoothed out.

Nonetheless, the current herd liquidation creates tighter supplies, lower slaughter numbers and higher prices for 2009's fourth quarter, Nalivka says.

4TH QUARTER HOG PRICES SEEN HIGHER

"As we continue to reduce U.S. hog numbers and see a 30% drop in Canadian hog imports, we are setting ourselves up for higher prices," Nalivka says.

For October, November, and December, the hog market is seen as making that first turn toward profitability, heading into 2010.

Nalivka says fourth quarter hog prices, on a lean carcass basis, are estimated at $50.00 per hundredweight, 10% below a year ago. "Though hog producers consider $62 per hundredweight a breakeven price, if realized, the fourth quarter price drop vs. a year ago beats the 2009 third quarter year-over-year decline of 27%."

"At the end of the year, the 2009 annual hog price, on a lean carcass basis, is seen as being 14% below a year ago," Nalivka says.

2010 HOG PRICES UP 9%

Though Nalivka estimates the 2010 first quarter hog market, on a lean carcass basis, at $54.00 per hundredweight, or down 7% vs. a year, the rest of the year is expected higher.

"I see hog prices hitting a peak in the third quarter at $64.75 per hundredweight, 16% higher vs. a year ago," Nalivka says. "That's quite a bit, when most producers were losing $15.00 per head in 2009, and had a $12.00 per head loss in 2008."

The losses in 2008 stopped a three-year streak of profitability, the longest in the hog industry. "So, any way you look at it, a 2010 return to profitability is good news."

TOTAL HOG SLAUGHTER

After a drop of 2% in 2009, Nalivka sees the 2010 total hog slaughter falling to 110 million head (3.0%) in 2010. A 4% drop in total hog slaughter is forecast for the first three quarters of 2010, and a 1% drop in the fourth quarter.

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