Tuesday, September 25, 2012

U.S. Pork Supplies Decline to 1975 Levels; Futures Could Go From Worst to First

And unlike the Chinese, the Americans don't have a National Strategic Pork Reserve.
Here's the ten second tutorial on Ag cycles:

The Hog Cycle
No not Harley-Davidson, although I imagine some econ grad student has written the paper.
Wheat and hogs are two commodities with long price series. We mentioned the hog cycle back in January:
The hog price series is one of the longest we have records for, back to the 1200's. The cycle is:
slaughter begets scarcity begets higher prices begets breeding begets over-supply begets slaughter. It's been going on for a while....
From Bloomberg:
U.S. hog farmers are slaughtering animals at the fastest pace since 2009 as a surge in feed costs spurs the biggest losses in 14 years, signaling smaller herds next year and a rebound in pork prices.

The 73.3 million hogs processed in eight months through August were the most in three years, U.S. Department of Agriculture data show. Pork supply will drop to the lowest per- capita since 1975 next year, the USDA estimates. Hog futures that fell more than any other commodity since June 30 may surge 39 percent in 12 months to as high as $1.055 a pound, based on the median of 12 analyst forecasts compiled by Bloomberg.

Crop damage from the worst U.S. drought since 1956 sent corn-feed prices surging to a record last month and may mean losses of about $44 a head for hog farmers in the fourth quarter, the most since 1998, Purdue University estimates. Two producers in Canada filed bankruptcy petitions this month. While the acceleration in slaughtering is boosting supply now, buyers including CKE Inc., the owner of Hardee’s and Carl’s Jr. fast- food chains, expect higher prices in 2013 as herds shrink and U.S. exports rise.

“We’re going to see more consolidation in the industry,” said Mark Greenwood, who oversees $1.4 billion of loans and leases to the hog business as a vice president at AgStar Financial Services Inc. in Mankato, Minnesota. “It’s only going to get worse on the higher feed prices.”

Worst Commodity
Futures on the Chicago Mercantile Exchange fell 20 percent since June 30, the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index (MXWD), which rose 11 percent. The MSCI All-Country World Index of equities gained 7.7 percent this quarter and Treasuries returned 0.2 percent, a Bank of America Corp. index shows.

A pig eats 10 bushels of corn to reach a slaughter weight of about 270 pounds (122 kilograms), the University of Missouri at Columbia estimates. Corn futures rose 47 percent since mid- June after the USDA predicted the drought will cut domestic output by 13 percent. Prices reached a record $8.49 a bushel in Chicago on Aug. 10.

Producers may receive about $56 per hundredweight for hogs in the fourth quarter, and the cost of production is estimated at about $72.29 per hundredweight, said Chris Hurt, an agricultural economist at Purdue University in West Lafayette, Indiana. That means farmers may earn about $151.20 for a 270- pound hog that cost about $195.18 to produce....MORE 
See also last week's "Prepare For A 15% Food Price Surge, Rabobank Warns":
..."As a result they will reduce their stock - both by slaughtering more animals and by not replacing them." Somewhat ironically. food prices are now being kept at depressed prices as the "slaughtered" stock clears the market. However once that is gone look for various food-related prices to soar: a process which will likely take place in early 2013, just in time to add to the shock from the Fiscal Cliff, which even assuming a compromise, will detract from the spending capacity of US (and by implication global) consumers.

The "mass liquidation" of animals - which Rabobank said will pick up pace in the beginning of 2013 - will contribute to food prices hitting new highs.

The cost of pork is expected to rise at the fastest pace - by 31% by the end of June next year - while beef costs could increase by up to 8%.

"This record cost of meat and dairy will combine with already-high crop prices to increase food prices by 15% by the middle of next year," Mr Higgins added....MORE Agrimoney has more:

Slaughter spree hides preparations for hog revival

A jump in hog slaughter to its highest since 2008, thanks to soaring feed costs, disguises preparations by farmers to "accelerate" their response to a recovery grain supplies, the US Department of Agriculture said....MORE