041143 Beef Market Situation Boosts Hog Prices

Sioux Falls, SD - There was some good that came from the discovery of a BSE- infected dairy cow in Washington state last December.

While rapidly closing export markets cut outlets for the American beef industry, global fear of bovine spongiform encephalopathy (BSE, or mad cow disease) opened the gate for demand rebounds in a meat market that really needed the boost -- pork.

According to Union County Extension Educator Zachary Rada, lean hogs are selling for $49 to $51 per hundred-weight this quarter on the Chicago Mercantile Exchange. This is 36% higher than last year.

"Hog market prices are at almost record high levels for this time of the year, and there's still a heavy kill (supply)," said Doug Conti, commodity broker at Midwest Market Solutions in Yankton. "The export market is excellent. There's good demand, because a lot of countries will not buy beef just yet."

He said beef has lost a "good share of its export markets," which were instead filled in with American pork, lamb and other meat species.

"That's the key to all the other livestock markets now," he added.

What's intriguing about the hog market situation is slaughter levels are currently as high as they were in 1998 when hog prices were at record lows.

"But, even with that size, prices are still up," Conti said. "We've entered into new era for hog demand, due to domestic demand, some, but exports most."

Rada speculated that domestic demand has just as much influence in high pork prices as exports to Mexico and Taiwan. He said high beef prices are sending consumers looking for meat alternatives, and pork falls right into that formula.

Both Rada and Conti said producers should expect continued increase in hog production, not only because of high market prices but also because feed prices are low.

"Hog producers will take advantage of the situation," Conti said. "And that will lead to expansion, as it always does."

Because hogs reproduce at rapid rate compared to other livestock species and expansion can be realized in less a year, Rada said supply could outstrip demand within the next six months.

"As soon as April, there could be a downtrend in hog (prices)," he said.

Neither Rada nor Conti think the beef market situation will change drastically in the next year, even when Japan resumes trade.

"The beef industry will have to gradually win back its export markets. Remember, someone else filled those when American beef producers weren't there," Conti said. "There will be no Œshooting up' of prices."

There is also talk of the U.S. reopening its border to Canadian beef within the next few months, Rada said.

"I don't think the amount of meat coming in will add much to our supply, but the packers will play it up and beef prices will decrease," he said.

But, he added, "beef prices are high, and they're not reducing anytime in the near future."

In addition, a still widespread drought is curbing expansion in the U.S., Rada said. Even though some producers are beginning to add to their herds now, increased production won't be realized for two to three years.

Also affected by the drought is the lamb market, Rada said.

"Inventories were down through 2004," he said. "There doesn't look to be much increase in supply very soon, so it looks like there will be good prices for while in lambs, too."

He said there was only one hurdle he could envision that would affect prices in the next few months of calves, hogs and lambs -- high energy costs this winter.

"I don't know how much people will be willing to spend on steaks, burgers and pork chops this winter, if they're paying a lot of money to heat their homes," Rada said. "It'll be enough to hold the market steady. If prices go down, it'll be minimal.

"So, unless it's a cold winter, we don't have to worry about prices much -- and definitely not with the mild, El Niño winter (meteorologists) are predicting."

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