Aideyan Hog Commentary: Bearish for third quarter hog prices

Jun 30, 2008

Commentary by Victor Aideyan, Senior Risk Management consutant at Farms.com

On Friday June 27 the United States Department of Agriculture (USDA) released its June Hogs and Pigs Report (H&P). Below is a Summary:

The actual supply estimates released by the USDA exceeded analysts (and our) pre-report estimates in almost all categories. The June H&P report indicates that U.S. hog supplies will be higher from now all the way through early 2009.

Third quarter 2008 hog supply (July-September) will be about 8% higher than year prior with average weekly Federally Inspected Slaughter (FIS), not adding holiday shortened weeks, exceeding 2.2 million.

Fourth quarter 2008 hog supply (October-December) will be about 3% higher than year prior with average weekly Federally Inspected Slaughter (FIS), not adding holiday shortened weeks, exceeding 2.4 million.

June H&P numbers do begin to indicate a decline in hog supply from January 2009 though indications are that average weekly FIS hog supplies will continue to exceed 2.2 million.

Price Implications: Bearish for third quarter and very bearish for fourth quarter 2008. We expect average spot negotiated hog prices (Iowa/Southern Minnesota carcass basis) during the third quarter to average somewhere between US$66-US$62 per cwt. And, fourth quarter cash hog prices to average between US$58-US$61 per cwt, carcass.

The wild card in all this continues to be pork demand and in particular export demand. If export demand comes in stronger (MUCH stronger) than 2007 we may have somewhat stronger prices. Even in such a “new export boom” case we still expect spot hog prices during the fourth quarter to be US$5-US$10/cwt carcass, lower than they are today i.e. US$66-US$61/cwt.

Takeaway: as in most years hedging 3^rd-4^th quarter sales is the way to go.

Victor Aideyan, Snr Consultant Farms.com Risk Management