Last week’s US hog marketings were 2.006 million, up form last year’s same week’s 1.962 million, as producers continue to race hogs to market, trying to pull weights down in the face of feed costs almost double those of a year ago. The same scenario can be seen in all meat proteins. Slaughter weights are dropping. We expect to see the trend continue as corn reaches the highest prices in a decade.

Total meat supply affects hog prices. Let’s look at the different scenarios.

Cattle

Average cattle slaughter weights are 26 lbs lower than a year ago, as feedlots aggressively move cattle to slaughter. Year-to-date cattle marketings are 4% more than a year ago. Short-term adding more beef (meat) to the food chain, but decreasing long-term beef availability. Feedlot margins have been horrendous. This has triggered some reaction.

• Stocker feeder steers at 90¢ lb are 20¢ lb lower than a year ago. A 700 lb steer bringing $140 per head less than a year ago for cow-calf operators as feedlot operators try to lower breakevens to cover higher feed costs.
• Cow slaughter is running almost 10% higher year-to-date. If this continues, base cattle production capacity will be greatly diminished.
• The USDA Cattle on feed report released last Friday showed placement of cattle in January at 77% of a year ago. The monthly placement total, the second smallest in eleven years. Talk about throttling back production. The good news for hog producers is that the January placements become summer hamburgers. Less beef this summer is a big win for hog prices.

Chicken

Chicken producers have the ability to ramp up or ramp down production faster than any other meat commodity due to chickens’ short circle of life.

US chicken production is running 4.1% lower than a year ago. The latest available year-to-date total is 5.812 billions lbs. This is around 240 million lbs less than a year ago. With loads of 40,000 lbs, this works out to 6,000 tractor trailer loads fewer of chicken this year compared to last. In the first seven weeks of the year 850 fewer loads a week. It is one of the reasons chicken prices are 75¢ compared to last year’s 63¢ lb. Calculate the difference of 12¢ lb on 830 million lbs a week. Its about $100 million in increased revenue per week. The chicken industry is smart or at least has the ability to adjust. The $100 million per week in increased revenue is helping the chicken industry weather the assault of higher feed prices.

For the hog industry, higher chicken prices and less chicken tonnage are price supportive. We expect the chicken industry to continue to balance cost of production to supply. We expect that chicken production in, not only the US, but the rest of the world is being cut back. Total chicken supply will decline. This restraint will support hog prices throughout 2007.

Corn

Corn hit life of contract highs this past week. There appears no end in sight of high or higher prices when you look at the actions at the Chicago Board of Trade with corn getting well over $4.00 per bushel.

The one factor that seems to be missed is $4.00 corn in the US is going to drive World Grain production. It is almost hilarious, if it wasn’t so bizarre. Whereas US government support programs allowed $1.80 bushel corn to be supported and it in itself curtailed world corn production (which lead most of the world to resent US support programs – come on down Canada). Now, the lunacy of ethanol production subsidization and punitive ethanol protection tariffs are driving world grain prices higher. This supports every grain farmer in the world (Canadian farmers included).

What will this do for world production? We read a report last week where Mexico expects 25-27 million acres of corn to be planted this year, up from last year’s 21 million. Four to six million more acres leads to a heck of a lot more corn. Is this happening in the rest of the world? 20-25% more planted? Give farmers profits and see the production come. All grain farmers can thank US ethanol subsidies.

High corn costs are decreasing usage for feed. Four pounds lighter hogs to slaughter, at 3 to 1 feed conversion is 12 lbs less feed per hog. Two million US market hogs per week is 24 million lbs less feed per week than a year ago. Twelve thousand tons of feed per week. Chickens decreased tonnage will be more. Beef will soon be more. Nothing like high prices to ration supply.

More corn planted – USA and the world – lower feed usage. Corn growers better hope for the ethanol boondoggle to continue.

As for weather, I remember hearing the late Mac Cuddy, who built Cuddy Farms into the world’s largest turkey hatchery with 3,000 employees say, “You go broke betting that there will be a drought.”

Hogs

US slaughter weights are down 4 lb a head from a year ago. Hogs are pulled ahead. There will be less hogs in the coming months.

US sow slaughter in the first five weeks of this year was 5.7% more than a year ago at 310,000 head. At 3,000 head more per week, there is no way the industry is expanding. High feed prices always make fewer sows and then fewer hogs.

This past week’s North American preview had an article by swine industry consultant, Mark Greenwood of Agstar. Agstar, from what we understand, is a farm credit banking facility.

In the article, Mr. Greenwood projects the breakeven of 270 lb hog with $4.00 corn to be 49¢ live weight. At $5.00 bushel, a 270 lb hog’s breakeven would be 52.50¢ lb live weight. Corn in the southeast US is currently around $4.80 bushel, upper Midwest $3.90 bushel.

Lots of trading dollars. The real winners are the producers who grow their own corn. The original integraters.

The coming months will lead to a further shake-out in the hog industry. There will be further consolidation. Producers who buy all of their feed will face huge financial challenges as opposed to those who grow most of it. The pork powerhouses will, for the first time in their history, be faced with the relentless challenge of high feed costs. The saving grace equity levels are high. The slaughter price will stay good, as expansion never got going before the feed prices jumped.

Productivity will be king. 24 pigs per year versus 18 will become more important than ever before. The shake-out will be about the cost of production. Some pork powerhouses probably have breakevens well over 52¢ lb. These will become candidates for take over by the better capitalized better producers. They will not go out of production.

Conclusion

This summer – less beef, less chicken, less pork – hog prices could very well reach 65-70¢ lb live weight as protein supply in the US and globally plummets. Lower supply, with demand from a continental and global society with the greatest disposable income in history and the desire for meat protein. A recipe for higher and higher prices.