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Hog Slaughter Status Poses Questions

15 October 2013

US - We start another week with no USDA price and slaughter reporting. This means we could not update the regular weekly summary table that accompanies every Monday report, write Steve Meter and Len Steiner.

While there continue to be attempts on the part of market participants to replace some of the information provided by the regular USDA report, the information so far, in our view, is vastly insufficient given the size of the market and the value of product traded. On the supply side, it is difficult to get a good idea as to the number of cattle and hogs that are coming to market each day. So far, the only thing to go on are estimates from private analysts but that is no substitute for the actual FSIS inspector reports reviewed and reported by USDA.

Urner Barry provided some estimates on both cattle and hog slaughter based on their discussions with two private analysts. Their guess is that cattle slaughter for the week was around 623,000 head, about 0.8 per cent lower than the previous week and 1.6 per cent lower than a year ago. With no USDA data for confirmation, these numbers provide a rather broad guidance.

There is no indication as to how many cows are coming to market. Judging from the lean 90CL grinding beef prices reported, however, cow meat supplies are more than adequate at this point. We have been asking analysts around the industry whether they think USDA will issue a Cattle on Feed report this month.

All analysts we have contacted have indicated they expect no report will be published, removing a key piece of information with regard to cattle supplies in Q1 of 2014. We have no idea how USDA will handle the missing data, but it appears likely to us that we could have a missing data point in the series. We should get an update from USDA soon confirming the status of the upcoming cattle on feed and cold storage reports.

One of the big questions this week was the status of hog slaughter on Saturday. After all, we have had three consecutive weeks where hog slaughter has dramatically underperformed normal levels. At the start of the week analysts were indicating they expected hog slaughter on Saturday to be somewhere around 110 - 130k, higher than recent weeks but still well short of normal.

The two analysts interviewed by Urner Barry pegged Saturday hog slaughter at 126,000 head and total weekly hog slaughter at 2.275 million had. While weekly slaughter was about 70,000 head higher than the previous week, it still was down 4.7 per cent from a year ago. The number of hogs coming to market in the last six weeks has departed significantly from survey responses to the latest USDA Hogs and Pigs report.

Interestingly, however, pork prices were notably lower in the last three days, at least based on the market quotes from Urner Barry reporters. The decline takes more significance this week since some of the hogs traded on a formula basis by some packers will be priced off the UB composite cutout. On Friday, UB quoted the composite pork cutout at $92.50/cwt, about 4.6 per cent lower than where we started the week.

The decline was in part due to a drop in the belly cutout value, which declined 11.4 per cent for the week. It appears to us that the decline largely reflects a lower quote for skin on bellies, an item that is rarely traded these days. On the other hand, the price of 9/11 derind bellies was quoted on Friday at $197/cwt, 2.4 per cent lower. We think it is fair to ask how it is possible that the composite belly value drops 11.4 per cent while the price of derind bellies that make up 80 per cent of the trade is down less than 3 per cent. Using the cutout to price hogs certainly has it perils.

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