Hog prices to head downward

Hog prices to head downward

Hog Outlook: Look for hog prices to drop in the fall.

The high hog prices of summer are behind us. Now, as the temperature starts to fall, hog prices are expected to head in the same direction.

Hog prices for 2016 are tracking closely to 2015 prices. One reason is that pork supplies have been similar in the two years. In fact, during the first half of 2016, pork supplies were virtually unchanged from the same period in 2015.

Cash hog prices reached the low $80s on a carcass basis in June. However, nearby lean hog futures caught fire and surged to $89. The upward surge in prices was partially driven by excitement over increased exports to China.

LOWER PRICES AHEAD: Economist Chris Hurt expects hogs going to market this fall to sell for less than they sold during the summer months.

China’s domestic pork production dropped due to poor producer margins a year or two ago. Chinese retail pork prices were at record-high levels this summer, and there was strong anticipation of aggressive Chinese buying.

Mixed export bag

Export data through May shows that Chinese purchases from the U.S. have more than doubled this year. However, this has largely been offset by a 5% decline in purchases from our two biggest customers: Mexico and Japan. As a result, total pork exports have only increased by a modest 1% this year.

Current USDA estimates are for U.S. pork exports to be up 2% for the entire year. This means pork exports may not be the bullish influence that futures markets were betting on in June.

While cash prices reached the low $80s in June, they averaged about $70 per carcass hundredweight for the second quarter. Pork supplies for the third and fourth quarters of 2016 are expected to be up 1% to 2% over the same quarters in 2015. If so, this likely means prices will be a little lower this year.  

Seasonal drop

Third-quarter prices are expected to average about $69 per carcass hundredweight, compared to $71 in 2015. Prices for the final quarter of the year are expected to average $57, compared to $58 last year.

Looking toward 2017, pork supplies are expected to remain unchanged to modestly higher in the first half of the year. If demand remains constant in 2017, this would provide prices around $58 in the first quarter and $70 in the second quarter.

Feed prices will be important in determining the level of profit or loss for the pork industry. Final crop yields are now being determined. Overall, it looks like the industry will have some small profits in this year's third quarter.

Look for losses in the final quarter of 2016 and first quarter of 2017. A return to modest profits is expected for the second quarter of 2017.  

Hurt is a Purdue University Extension agricultural economist. He writes from West Lafayette, Ind.

Hog prices to head downward

TAGS: USDA
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