Hog Weights Return Above Year-Ago

Posted on 03/09/2017 10:23 AM

I recently wrote about the tendency for cattle weights, as indicated by steer carcass size, to serve as a sign of the market-ready supply situation and possibly the forthcoming price outlook. This clearly begs the question, "Does this apply to the hog market as well?" That did seem to be the case at one time, but it doesn't seem to be a particularly reliable indicator any more.

The chart below illustrates the weight reading most market observers use, the weekly average live weight of hogs direct-marketed in the Iowa-Southern Minnesota region. It shows the sustained upward trend in place over the past 16 years, although the rise has been occurring for decades. Note the generally steady nature of the increase through the 2000-06 period, as well as the flat to lower readings that followed during the 2007-10 time span. I suspect the feed price increase triggered by the ethanol program caused producers to finish swine as quickly as possible in those years.

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The upward trend resumed in late 2010 then accelerated drastically higher in late 2013. Feed costs clearly began coming down in the wake of the 2012 drought, but the obvious reason for the 2013-14 weight surge was the PEDv outbreak. That is, with the supply of pigs falling so far short of industry needs from late 2013 through 2014, producers did the next best thing by growing hogs to extremely heavy levels. Pork packers apparently have few objections to the upward shift, or their pricing incentives would almost surely have persuaded hog farmers to curtail feeding and move hogs more quickly than is now is the case.

Average hog weights have fallen below the highs posted in 2014 and 2015, but, as the chart below indicates, current weights are now running above year-ago levels. Indeed, the latest reading for the week ended May 6 came in at 283.2 pounds/head, which marked a 2.0 pound annual increase. On the other hand, it's 3.4 pounds below the comparable 2014 reading. The sustained nature of the recent year-to-year increase may partially explain the seemingly moderate nature of the recent seasonal advance in hog prices, since it suggests producers are not marketing their animals in a particularly timely manner. Conversely, recent history shows significant weight shifts haven't been all that important to major market trends.

pigweights_may17

This third chart illustrates this point. It plots the percent annual change in Iowa-Southern Minnesota pig weights versus weekly average readings for the CME lean hog index. The idea that relatively low hog weights exemplify very tight conditions and presage higher prices wasn't really tested during the 2000-05 period, since weights seldom fell below comparable year-ago levels. Weight reductions did occur more regularly during the 2006-07, but prices were generally below those seen in 2004. One could argue that low weights and tight supplies caused the 2008 hog rally highlighted by the shaded area, but in truth, China's huge import surge as that country prepared for the August Olympic Games powered that advance. The 2010-11 price rise also seems to support the low weight-tight supply premise, but Chinese buying again provided much of the bullish impetus when it made another big splash in the U.S. hog/pork market.

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The 2014 price spike turned the supposed rule on its head as producers pushed weights far above record highs in order to diminish the PEDv-driven hog/pork shortage. The big weight reductions seen last year also seemed to do little to support the market as the industry adjusted to resurgent hog supplies and strangled demand at the consumer level.

Ultimately, I think active producer marketings to the point where they push average hog weights below year-ago levels will tend to tighten market-ready swine supplies and generally support the market. However, it's pretty clear the relationship is not nearly as strong for the hog and pork complex as is the case in the cattle and beef markets.

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