A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3050
(March 23, 2000) HOGS: The USDA will release its quarterly Hogs & Pigs report this Friday, which could significantly alter the outlook for hog and pork belly prices. Given the report's proximity, we can make few definitive forecasts for the pork markets at this point. However, we can make a few generalizations.
Given the strengthening cash market experienced during recent months, which have been confirmed by strong premiums in lean hog futures, the hog industry is probably verging on a new expansionary phase. Analysts and traders generally believe U.S. swine numbers wax and wane according to a 3-4 year cycle. Historical patterns suggest that just as high prices in the summer of 1996 followed the disastrous fall of 1994, soaring summer-2000 prices will result from the catastrophic levels reached in late 1998. The previous chart compares a four-year cycle to the percent annual change in the hog population. If the cycle is relevant, we can anticipate a move toward expansion toward the end of the year.
Pork demand remains quite strong. The fast-food industry's love affair with bacon persists, which in turn is continuing to boost pork belly usage and consequently, prices. Fresh (untrimmed) belly prices set new 2000 highs this week when they reached 86 cents. The current trend toward high-protein diets is probably boosting red meat consumption, thereby supporting both beef and pork values. Export demand has been trending upward for years. Our best international customers (Japan, Mexico, South Korea and Canada) are all experiencing relatively robust economic conditions. As a result, their buying should continue to strongly supplement domestic consumption. Anticipation of robust demand has driven June hog futures above 70 cents/pound. It remains to be seen whether second-quarter conditions will push cash prices to that level.
Dan Vaught