October 19, 2012 / 9:28 PM / 8 years ago

Pork supply bloated by drought, feed costs: analysts

(Reuters) - A rush by producers to slaughter hogs due to high feed costs ballooned pork supplies in U.S. warehouses to a record level in September, analysts said.

And those who own that pork could be in for a windfall next year as pork prices are likely to increase because of fewer hogs and less production after the rapid pace of herd culling, they said.

The U.S. Department of Agriculture will issue its September Cold Storage report on Monday that analysts expect will show pork supplies at about 620.3 million lbs — the most ever for September and the fifth straight monthly gain.

The tally compared with 580.8 million in August and 491.9 million a year earlier.

“We have had some enormous slaughters and produced a mountain of pork,” said Dan Norcini, an independent hog futures trader at the Chicago Mercantile Exchange.

“The question is whether or not there is really some actual demand there or whether packers are cramming it into storage with the expectation that hog numbers might fall off later in the winter,” Norcini said.

The United States has more than 1,500 public and privately owned cold storage facilities with a combined capacity of almost 4 billion cubic feet. California, Florida, Georgia, Pennsylvania and Wisconsin have the most capacity, according to USDA.


CME spot hog futures fell to their lowest level in more than 1-1/2 years in September due to a sharp increase in the slaughter rate. Futures have since been on a rebound on expectations that hog supplies will tighten this winter and into next year.

Hog futures closed Friday at 79.625 cents per lb, up 13 percent from the September 7 low of 70.375.

The number of hogs rushed to packers in September was down 2.4 percent and that resulted in a decline of 2.2 percent in pork production — both compared with a year earlier, according to USDA data.

However, pork production from January through September was estimated to be up 2.6 percent versus the same period a year ago.

Contributing to the burdensome pork supply was the seasonal onset of cooler autumn temperatures that had hogs quickly gaining weight.

Abundant and heavier hogs pulled down hog prices in late summer. Prices gradually recovered last month as supermarkets bought fresh pork to feature during National Pork Month in October.

Also, packers willingly paid more for hogs as their profit margins improved after buying lower-priced hogs in August.

Independent market analyst Bob Brown said September pork stocks could exceed the current September record of 528.9 million lbs set in 2009, and post a fifth straight month of record highs. That despite the slip in production from last year and a potential drop in inventories from August 2012.

“The decline in pork production from August to September this year was partly due to a 15 percent decline in the number of slaughter days from August to September 2012, which won’t be the case next month,” said Brown.

He is expecting October pork production tonnage will be the highest ever for any month due to more slaughter days.

At a time of bloated pork stocks, U.S. pork exports to China slowed from the same period a year ago due to an excess number of hogs in that country, analysts said.

Given the likely year-to-year decline in Chinese exports, and spillover from large domestic stockpiles in August, last month’s pork inventory probably jumped sharply from the late-August total, said Dan Vaught, president of Arkansas-based Vaught Futures Insights.

“A substantial portion of the anticipated rise in pork stocks may have come in the form of hams. On the other hand...it may be that strong Mexican buying emerged in response to last month’s low prices, which in turn may have limited inventory growth,” said Vaught.

Chicago Board of Trade corn futures fell 4.7 percent in September, but the average price for the month of $7.71 per bushel was the second highest on record.

On August 10, corn prices hit a record high of $8.43-3/4 a bushel as the worst drought in half a century devastated the U.S. crop, the world’s largest. The United States is also the world’s largest corn exporter.

additional reporting by P.J. Huffstutter; Editing by Bob Burgdorfer

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