020915 Hog Market Cheers USDA Purchases

Washington (Reuters) - The U.S. government will buy $30 million worth of ham, pork patties, sausages and ground pork for the federal school lunch program to help hog farmers hit by mounting inventories and sliding prices, Agriculture Secretary Ann Veneman said.

The purchase was far larger than usual for pork by the U.S. Agriculture Department, which regularly buys smaller amounts of meat, eggs, fruits and vegetables for federal programs.

Veneman did not rule out additional pork purchases.

"Pork producers have been suffering from lower prices," Veneman told reporters after addressing the National Farmers Union. "I can't say we are counting in or out additional purchases."

The new help for hog producers comes as both political parties rush to help farm states ahead of the November election. Democrats control the Senate by a single vote and some of the closest races are in farm states such as Iowa, Minnesota, Missouri, Arkansas, Colorado and South Dakota.

Hog prices paid to farmers have slumped in recent months on rapidly growing U.S. supplies of all kinds of meat.

The USDA forecast farmers will receive hog prices averaging in the high $20s per hundredweight in the fourth quarter of 2002. Last year, they averaged $45 per hundredweight.

A drought in Plains states has withered pastures and forced ranchers to send cattle to slaughter earlier than planned. The interruption of U.S. poultry exports to Russia also contributed to growing supplies of beef, pork and chicken.

The USDA's $30 million purchase would equal more than 50 million pounds of various pork products, boosting total pork purchases for the current school year to roughly 66 million pounds, the USDA said. The government already bought 13.8 million pounds of pork for the current school year.

By comparison, the USDA bought 29.9 million pounds and 22.8 million pounds for each of the previous two school years.

News of the USDA purchase boosted hog prices, which fell last week to the lowest level in more than three years.

In the cash market, hog prices rose by 50 cents to $1 per pound. The October hog futures contract traded on the Chicago Mercantile Exchange rose 0.375 cents to 34.075 cents per lb.

Dave Roper, president of the National Pork Producers Council, said the government action would help farmers trying to cope with market events out of their control.

"A rapid increase in the number of slaughter hogs ready for market and difficulty in moving the increased production has led to unprecedented low hog market price levels," Roper said. "We are looking at major pressures on producers."

USDA Chief Economist Keith Collins told reporters the government's $30 million purchase of pork would have a "positive, but moderate" impact on the U.S. hog market.

"We can influence it on the margins, at best," he said.

In July, Smithfield Foods Inc. , the nation's biggest hog producers, reported a nearly 80% drop in quarterly profits due to low hog prices.

U.S. pork production in the third quarter of this year was forecast at 4.8 billion pounds.

Under the USDA commodity-buying procedure, the government will ask the pork industry to submit bids to supply the meat.

Collins also expected a downturn in U.S. cattle output in the fourth quarter of 2002. The number being placed on feed was down, he said, reflecting a depleted cattle inventory and producers' desire to hold out for higher prices.

Last year, the USDA spent more than $1 billion to buy fruits, vegetables and meat for federal feeding programs. The vast majority of the food went to school lunches, with smaller amounts served at school breakfast programs, Indian reservations, nutrition programs for the elderly and feeding programs for victims of natural disasters.

Some of the USDA's food purchases this year included $10 million worth of bison meat and $6 million worth of breaded catfish to help producers in both industries.

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