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Hog producers should exercise caution

Agriculture.com Staff 09/21/2006 @ 3:02pm

Hog futures were in a steady uptrend until early September. However, all good things come to an end. We have a growing concern that the export market may be slowing. Beef exports are expected to gradually increase, potentially competing with pork. Bird flu news has been quiet.

In addition, common sense suggests that, with most farrow-to-finish operators showing profits for nearly three years, the herd is expanding. We continue to hear anecdotal evidence of this through our network of farmers who suggest they are seeing herd expansion. Cheap grain may be the biggest catalyst, as corn prices have been an exceptionally good value for end users the last eighteen months.

We encourage hog producers to have an aggressive marketing strategy for the upcoming year. Our rationale is that the export market, which showed a month-to-month decline in July for the first time in three years, along with an expected production increase of just under 3% for 2007, could mean a sustained long-term downtrend for hogs. While packer capacity has increased in the U.S., the product still has to be sold. If consumers do not step up to the plate in a bigger way, inventories could build.

Bottom line, the market is not clicking on all cylinders for a bullish outlook. This suggests that hog prices could sputter or perhaps fall apart. We do not see a scenario as negative as 1998, but lean hog values could be trading near the $50 level six to twelve months from now instead of the mid to upper $60 level.

If you have any questions or comments or would like more detailed strategies for your situation, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

Hog futures were in a steady uptrend until early September. However, all good things come to an end. We have a growing concern that the export market may be slowing. Beef exports are expected to gradually increase, potentially competing with pork. Bird flu news has been quiet.

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