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Lower Hog Numbers Keep Prices High, But Heavier Hog Weights Limit Production Losses

USDA slightly decreased its forecast for second-half 2014 pork production, by 5 million pounds, from last month’s forecast—a change that derives largely from lower than expected production in September, due to PEDv-reduced supplies of slaughter hogs. However, expected increases in average hog dressed weights will continue to partially compensate for lower hog numbers. Second-half weights are expected to average about 216 pounds, compared with about 207 pounds last year. Although hog prices have declined since mid-July, they remain higher than a year ago. Higher hog prices combine with lower feed costs, cooler-than-usual summer temperatures, and excess barn space to create incentives for producers to feed animals to higher weights.

So far in 2014, higher dressed weights have offset a good chunk of the deficit in hog supplies brought about by PEDv. In the first half of the year, commercial hog slaughter was 3.5 percent lower than a year earlier, while commercial pork production fell just 0.02 percent below the same period in 2013. In the second half of 2014, commercial hog slaughter is expected to fall about 7.5 percent below a year earlier, while commercial pork production is likely to be about 3.6 percent below the second-half of 2013.

Average prices of 51-52 percent lean hogs in August were $80.38 per cwt, almost 16 percent below prices in July, but more than 13 percent higher than August 2013. Lower hog prices since July could reflect, in part, a combination of gradually increasing hog supplies, and packer adjustments to slaughter schedules. Hog and pork markets in August also contended with the announcement of Russia’s embargo of U.S., E.U., and Canadian pork products, along with anecdotal evidence of Russia-bound Canadian pork products diverted to the United States. Third-quarter hog prices are expected to average $83-$84, about 18 percent above a year ago. Fourth-quarter prices are expected to average $77-$78, about 18 percent higher than fourth quarter of 2013.

July Exports Lower Than a Year Ago
July’s pork exports were 396 million pounds, about 2.5 percent below a year ago. The table below shows that July exports were lower to 7 of the 10 most important foreign markets, with the exception of Mexico (which was the largest foreign
destination for U.S. pork in July), South Korea, and Colombia. Very high prices of U.S. pork products in June may explain, in part, reduced exports in July. On the assumption that most pork products exported in July are ordered and priced in June, a table comparing average wholesale prices of U.S. pork cuts in June 2014 and June 2013 is set out below. The data show that June 2014 wholesale values for the pork carcass cutout and other often-exported pork cuts were significantly above year-earlier prices, likely due to market expectations of lower pork supplies due to PEDv.

Source: USDA