January 10, 2001

The next few years could be more profitable for cattle producers; the hog market is more "precarious," a market analyst predicted at the American Farm Bureau Federation annual meeting. The key is sow slaughter. "If it's much below last year, you'd better start planning for significantly lower prices," Jim Robb, of the Livestock Marketing Information Center in Denver, told hog producers. A second major factor could be packing plants and their slaughter capacity, he added, noting that a strike at a small plant in Canada helped create the disastrous hog prices of 1998.

Hog producers probably will find their highest profits in the first and second quarters of this year, he said, but that's assuming nothing major goes awry. If another packing plant doesn't leave the already-constricted packing industry or if expansion in the hog industry doesn't occur more quickly than predicted, Robb said prices should average in the range of $39-$41 per hundredweight (cwt.) for the first quarter and $46-$48 per cwt. in the second.

From there he predicted that prices will decline to $3.80-$4.10 per cwt. in the third quarter, but it's the fourth quarter that will really test producers' fortitude, Robb said, predicting prices in the range of $27-$30 per cwt.

"There's a 40% chance prices could drop below $20 sometime during the fourth quarter of 2001," Robb said. "That leaves a better than 50% chance that it won't," he noted, but he added that producers need to be cautious.

Of particular concern, Robb said, is growth in the number of sows, because more sows means more hogs, which generally results in lower prices. For 2001, the current forecast is a 1% increase in sows, which wouldn't depress prices too much, he added. But many forecasters believe that number might not be realistic.

"Two percent (increase) is sort of okay, but at 3% you've probably got a pretty big problem to talk about," he said. "That's a lot of production that's got to find a home."

"If it (exceptionally low hog prices) does happen, it'll spill over into the beef market," Robb said. Aside from that risk, though, Robb predicted the next few years will probably be pretty good ones for beef producers.

The price cycle for cattle is due to go on an upswing, Robb said, adding that if this occurs, producers likely will see three to four more good years on the price front before prices start to erode. He forecast prices ranging from $69-$76 per cwt. for 2001 and from $69-$79 per cwt. for 2002.

"We're at a turning point in the cattle cycle," he said.

Predictions for both cattle and hog prices could be significantly improved due to the Livestock Mandatory Reporting Act of 1999, according to two other speakers at the session: Steve Meyers, director of economics for the National Pork Producers Council, and Chuck Lambert of the National Cattlemen's Beef Association.

The act requires packers to report a number of statistics not currently available to producers, including daily hog marketing intentions, reports on the prior day, purchase data, slaughter data and many other pieces of information. An important change is that for the first time, producers will be able to see official figures that reflect the price of "negotiated" livestock – livestock bought on other than a cash basis. There also will be a weekly report on the various premiums being offered, such as for hogs delivered by a particular time or for a particular breed.

"You will still have to find out what's available in your area, but you'll know what's out there," Meyers told producers.

Although some of the new information is on USDA's January hogs and pigs report, most of it is not yet available, Meyers added, and no one is sure how soon it will be. "There's going to be some confusion about it – it will take time to implement," he said.

Lambert said that it could be that some parts of the act might need some fine-tuning, and added that NCBA is open to such considerations.

"We've got to be careful because there are packers out there who would like to technically amend this thing out of existence," he concluded.