SFD. Low hog prices.
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Low prices have US hog farmers paring herds-trade
August 20, 2002 1:46:00 PM ET
By Bob Burgdorfer
CHICAGO, Aug 20 (Reuters) - U.S. hog producers are rushing hogs to market now, even their breeding stock, to reduce herds and minimize losses in response to higher feed costs and anticipation of lower hog prices ahead, livestock analysts said.
"I think there is liquidation going on," said Jack Salzsieder, a livestock analyst with Iowa-based Broker Professionals, who said producers are selling young female pigs that would normally be held back for breeding.
The rush to sell hogs has pressured cash hog prices, and analysts predict prices will drop even more in the fourth quarter when hog supplies are at their year's high.
The hog industry's woes may have been partially responsible for meat giant Tyson Foods Inc.'s (TSN) announcement this week that it will shut down a large part of its money-losing hog operations.
Tyson said the high cost of shipping hogs from its Arkansas and Oklahoma farms to Midwest pork plants and the cost of bringing in feed prompted the decision. The move will cut the company's market hog output to 150,000 head a year from 1 million. Its 100,000-head sow herd will be cut by about 30,000.
Livestock analysts said Tyson, which had tried to sell its hog unit a few years ago, was probably also pushed to trim its hog operations by the same forecasts for low hog prices and high feed costs that have led smaller producers to bail out.
"The old farmer out there doesn't have a press release when he sells his herd," said John Lawrence, agriculture economist at Iowa State University. "I think it (Tyson's news) is an indication of the bigger trend in the industry, because we have had sow slaughter higher since June."
An abundance of beef, pork, and poultry this year has hurt prices for all livestock. Cattle producers at times lost more than $150 on every steer and heifer they sold. Hog producers have lost $10 to $20 on each market hog, and that figure may climb to about $50 in the fourth quarter.
"Hog profitability isn't going to get a whole lot better near-term," said David Nelson, a food analyst for CS First Boston, who follows companies like Tyson Foods. "It is probably going to get worse for the next six months."
Smithfield Foods Inc. (SFD), the nation's largest hog producer, and Premium Standard Farms, the second largest, may be better positioned to handle the hog market's troubles because their hog facilities are closer to packing plants and are more efficient, food analysts said.
Cash hog prices, currently at about $30 per hundredweight, may drop to $20 or lower in the fourth quarter, said Ron Plain, agricultural economist at the University of Missouri.
"I think the upper teens is quite possible." Plain said of fourth-quarter prices. "The way corn is headed probably anything below $40 is going to be losing money."
Prices of corn, a major livestock feed, have sped higher recently in reaction to reports that late planting this spring and a hot summer hurt the crop. The U.S. Agriculture Department recently estimated this year's corn harvest at 8.886 billion bushels, the lowest since 1995. REUTERS
