Grimes and Plain Weekly Hog Outlook

CHICAGO - Jan 11/08 - SNS -- Following is a week ending hog market comment from the University of Missouri - Columbia's Glenn Grimes and Ron Plain.

Over the years, hog producers reduced production on average 15-16

months after they started losing money. According to data from Iowa

State University, the average cost producer started losing money on

hogs in October. If producers respond as quickly to losses as they

have in the past, pork production will likely drop below year earlier

levels in the first quarter of 2009.

However, hog producers who forward priced hogs using a contract

tied to the futures market made money in October and only lost $1.55

per head in November and $4.89 per head in December. About 15 percent

of the hogs produced by independent producers used a contract tied to

the futures market in December. Some producers whose volume we have no

way of measuring used the futures market directly without a packer

contract. Therefore, a substantial portion of the producers have not

lost very much money in the last three months of 2007.

The price protection with the futures market and the change in

the structure of the production segment of the current hog industry

may slow the adjustment. Most hog producers now are dedicated to hog

production and getting in and out of production is not easy. These two

factors may slow the reaction to losses which could keep production at

or above year earlier levels through more of 2009 then history would

indicate.

Hog producers also are in a very strong financial condition. Hog

production was profitable for a record high 35 months ending in

December 2006. However, the loss was only $0.60 per head in January

2007 then for February through September the average monthly profit

was $12.77 per head based on Iowa State data. In other words, hogs

were profitable for 43 out of 44 consecutive months. We believe the

odds are relative high for losses on average for most of 2008 and

possibly into 2009, unless the industry is again blessed with

substantial growth in live hog demand as it was in 2004.

Hog slaughter continues very large and above expectations with

slaughter this week above 2.4 million head under Federal Inspection,

the second week of record with a slaughter above 2.4 million head.

Pork cutout per cwt of carcass Thursday afternoon at $55-69 per

cwt was down $0.60 per cwt from a week earlier. Loins at $71.28 were

down $4.32 per cwt, Boston butts at $57.93 were down $4.32 per cwt,

hams at $39.45 per cwt, up $2.21 per cwt and bellies at $70.58 per

cwt, down $1.17 per cwt from 7 days earlier.

Top live hog prices Friday morning were steady to $2.00 per cwt

lower compared to a week earlier. The weighted average negotiated

carcass prices Friday morning were down $0.41-0.70 per cwt compared to

Friday 7 days earlier.

The top live prices for select markets Friday morning were:

Peoria $27.00 per cwt, St. Paul $30.00 per cwt, and interior Missouri

$32.00 per cwt.

The weighted average negotiated carcass prices Friday morning

were: Western Cornbelt $46.60 per cwt, Eastern Cornbelt $44.23 per

cwt, Iowa-Minnesota $46.63 per cwt and nation $45.40 per cwt.

The average live weights of barrows and gilts last week at 271.6

pounds was up 0.5 pound from a week earlier and up 0.6 pound from a

year earlier.

There is a possibility that hog slaughter will be increased in

coming weeks as producers reduce market weights by pulling marketings

forward due to high priced feed and substantial losses.

Slaughter this week under Federal Inspection was estimated at 2444

thousand head up 16.4 percent from a year earlier.

Issued by Glenn Grimes and Ron Plain

University of Missouri - Columbia

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