December 4 ,1998 / Glenn Grimes and Ron Plain / University of Missouri / Department of Agricultural Economics

--- Slaughter continues at near record high levels. Slaughter for the past 5 weeks is up over 10% from a year earlier. The Friday morning estimate for this week's slaughter was about 2,155,000 head, down about 36,000 head from the 2,190,000 head for the week of November 21.

During the past month, hog slaughter has been about 6% above expectations based on the September report. We are hoping some unusual bunching of marketings is causing this overrun and it's not an underestimation of the hog herd in September. If we continue to have 4-6% more hogs than expected--based on the September report, through the first quarter, hog prices will stay very depressed. But if we can cut back to only a 3% or so increase in slaughter for the 1st quarter from a year earlier, hog prices will rally substantially.

Sow slaughter for the week ending November 21, was the largest since the spring of 1995 but was up only about 7% from a year earlier. We still believe the breeding herd is being reduced at the rate of 0.3-0.4 percent each week. There is some possibility that our data could be underestimating the rate of decline.

Trade reports are that one well known price analysis group is estimating that the breeding herd on December 1 will be down 7% from a year earlier. Certainly the stress and conditions would support a decline this large. A decline of 7% in the breeding herd this December 1 would result in a 6% or so decline in the 4th quarter 1999 slaughter from this year.

Cash hog prices this Friday were $0.50 lower to $1.00 higher than 2 weeks earlier. The top practical prices for select markets were: Peoria $17.00, Sioux City $18.00, St. Joseph $17.00, Omaha $18.50, Sioux Falls $18.00, Iowa in country $17.50, Iowa at Plants $18.50 and interior Missouri $17.00.

It is obvious that we still are stressing slaughter capacity with our current level of marketings. However, packers had to hustle a bit more this week to get numbers than they have for several weeks ---possibly a good sign for the first full slaughter week following Thanksgiving shortened week. We expect to see some faster reduction in the breeding herd in early 1999 as producers try to get financing to continue to operate. This is by far the most stressful economic condition for specialized hog producers with no other income I have ever seen.

The probabilities are high for conditions to be positive for a longer period of the next hog cycle than in the past. In the past, we have normally had 2 good profit years in a cycle. We see the potential for at least 4 years of good economic conditions for producers in the next cycle.

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