031244 Record Beef Prices Support Pork Sector

Washington, DC - Fourth-quarter prices of live equivalent 51-52% lean hogs are expected to average $37-$38 per cwt, almost 20% higher than a year ago. Weekly hog slaughter since the first week of October has been a consistent 2.1 million heads or above, with the exception of holiday weeks. Given this weekly slaughter pattern, fourth- quarter hog slaughter will fall only slightly below 1998 when fourth-quarter hog prices were $22 per cwt. With an expected slaughter of about 27.4 million head, and dressed weights of 199 pounds, fourth-quarter pork production will be record high at about 5.45 million pounds, nearly 4-percent greater than last year, and 4% more than in 1998. If current price and production expectations are met, the market will be faced with higher hog prices and record-high pork production, a situation at odds with all those Economics 101 scenarios where prices are low when production is high.

It appears that the dynamics of another variable-- Choice beef prices--explain higher hog prices at the same time that the industry is producing record quantities of pork products. Record-high cattle and beef prices have probably fostered a shift by consumers toward relatively lower-priced pork products. The shift in demand toward pork is signaled by the higher wholesale carcass cutout value, which averaged $58.08 during October- November, almost 8% higher than in the same period last year. The higher cutout provides an incentive for packers to pay higher prices for hogs while, at the same time, enabling them to maintain positive slaughter margins.

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