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ANALYSIS-US piglet prices jump sixfold in post-drought recovery

Source: Thomson Reuters Foundation - Thu, 29 Nov 2012 06:59 GMT
Author: Reuters
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* Baby pig prices soar more than 500 percent

* Tight supply, strong demand behind surge

* Hog producers seek to rebuild decimated herds

* Producers seen turning a profit in May

By Theopolis Waters

CHICAGO, Nov 29 - Lonnie Hoelscher, owner of Hoelscher Farms in Bartlesville, Oklahoma, has been fielding calls from his regular customers as well as strangers for a hot commodity - his baby pigs.

After the worst drought in half a century hammered livestock producers like Hoelscher with record-high feed grain prices, there is renewed interest in raising pigs, an indication that the struggling hog industry is on the cusp of a recovery.

Baby pigs are the building blocks needed for hog herds.

Business has been brisk for Hoelscher who last year raised 12,000 hogs, most of them baby pigs.

"I have people locally that will call me and ask if I have two or three pigs that they can buy because when they go to the local stockyards, they are harder to come by," he said.

The price of baby pigs, or piglets, weighing 10 to 12 pounds like those being sold by Hoelscher has surged nearly 550 percent in less than three months.

Known in industry parlance as segregated early weaning (SEW) pigs, their prices have gone from a low of ${esc.dollar}8.08 per head on August 17 to a high of ${esc.dollar}52.35 the week of Nov. 16 as hog producers take small yet cautious steps to rebuild their depleted herds.

These piglets are typically removed from their mothers two to three weeks after birth, separated by gender and isolated in special climate-controled nurseries so they have the best chance of survival.

U.S. hog farmers in September were losing about ${esc.dollar}54 on each hog they sold, the most red ink since 1998 when prices for some hogs fell below ${esc.dollar}10 per head after a major packing plant went out of business, according to trade sources and academics.

"In late 1998, many could hardly sell the pigs or the hogs, period," said Hoelscher, adding that he would have suffered major losses that year had if not for a deal he had with a buyer.

LONG ROAD BACK TO PROFITS

Because the drought devastated U.S. crops, traders bet that there would be a feed shortage from the world's largest grain producer and exporter, leading to sharply higher prices.

Hog producers liquidated their herds at a record pace as corn futures soared at the Chicago Board of Trade, finally peaking at a record high ${esc.dollar}8.43-3/4 per bushel on Aug. 10

That rush to slaughter hogs led to a brief decline in the price of pork. Analysts now warn that the smaller hog herd could be a harbinger for higher pork prices next year, as it takes about 10 months from conception to maturity to produce a hog for slaughter.

The increase in sows sent to slaughter during the drought sharply reduced the number of SEW pigs available in the market. During the week of Nov. 16, the number of these pigs delivered to farms totaled just 28,800 head, compared with 63,700 a year ago, according to data from the U.S. Agriculture Department.

John Ginzel, an analyst with Chicago-based Linn Group, said producers were increasing their purchases of SEW pigs as they expect demand for pork to pick up in the coming months.

"Producers who put the pigs into nurseries and finishing barns reflect demand for hogs, as well as pork, and their opinion about the future," he added.

LOWER CORN PRICES BRING RELIEF

University of Missouri economist Ron Plain said hog producers will likely start making money beginning in May.

Until then he forecast fourth quarter 2012 hog losses to average ${esc.dollar}31.25 per head, first quarter 2013 losses to average about ${esc.dollar}23, and April losses of about ${esc.dollar}12. In May, producers could make about ${esc.dollar}2 per head, he said.

"We've taken a little more than a dollar off of corn, which may not seem like much now, but years ago you didn't get a ${esc.dollar}1 (per bushel) change in corn prices all year long," he said.

The lower corn prices, coupled with an 8 percent increase in U.S. pork exports in the January-to-September period versus a year ago, have given hog farmers hope for profits beginning in May and lasting through the fall, he said. That outlook is supported by Chicago hog futures showing a jump in hog prices beginning in May 2013

There are signs that cash prices for market-ready hogs are already recovering the rebound. After peaking at a high of ${esc.dollar}102.52 per cwt on June 18, the average hog price at the closely watched Iowa/Minnesota market slid to a low of ${esc.dollar}62.94 on September 14. But, later rebounded to a high of ${esc.dollar}83.83 on Oct. 23 and are now about ${esc.dollar}80.

'WORST BEHIND US'

Bill Tentinger was close to throwing in the towel on hog farming, staggered by the sky-high feed costs.

The corn he grew on his 40-year-old family farm in Le Mars, Iowa, was not enough to feed the 7,000 hogs he raises, so the 63-year owner of Tentinger Farms was forced to reduce his herd.

But now he senses a turnaround in the industry and has begun buying SEW pigs in an effort to rebuild.

"The biggest thing we're looking at, and makes us believe (hog prices) could go higher, is the shrinking supply of baby pigs to put on seed (feed) after some farmers actively liquidated their sow numbers," said Tentinger.

He was also encouraged by a retreat in corn prices over the past three months.

Corn prices have fallen 8 percent from their peak while hog futures at the Chicago Mercantile Exchange soared 7 percent.

Tentinger said the corn harvest is over and while it was less than hog farmers had hope, Tentinger said "once you know what you can work with it's easier to be more upbeat."

Purdue University livestock economist Chris Hurt said even though profitability may be within their grasp, hog producers should be mindful of relatively high corn prices.

"The worst might be behind us, but they are still going to go through losses for another six months and may see a break even price in May," Hurt said.

(Editing by K.T. Arasu and Bob Burgdorfer)

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