click image to zoom An aside: Here’s an interesting story that we noted this morning. Reuters reported that Chinese authorities would increase state pork purchases in an effort to support domestic consumers after a sharp drop in hog and pork prices there. Pork prices in China apparently have fallen for 11 consecutive weeks. Last fall, China became a top buyer of US pork because pork prices were too high and affecting inflation. In our DLR 8/3/2011 we noted that because of the industry structure, high pork prices in China could lead to a sharp increase in production and resulting collapse in prices. It appears that may have happened, although as usual China statistics are hard to come by. It may help explain what is going on with US pork exports at this point. The weekly pork export data cannot come soon enough.
US cow slaughter has pulled back sharply in recent days and it is tracking well below year ago levels. Based on the daily estimates from USDA, cow and bull slaughter is currently running at a pace of about 120,000 head per week, about 10% below year ago levels. While there is plenty of anecdotal evidence that cow/calf producers are in herd rebuilding mode, indeed some areas of the country are well under way in expanding their herds, much will depend on what happenswith feed supplies for cows this spring and summer. Hay prices (see chart) at this point are at all time record highs, a result of very tight stocks following a sharp decline in hay acres last year and the effects of drought. In the Southern Plains, producers last fall and winter had to drive hundreds of miles to find feed for their animals, something that one can do in a pinch but which is generally not a good business model if you plan to stay around. At this point, moisture conditions are much improved in the Southern Plains (don't tell that to producers in Western Texas though). In a couple of weeks we should get the first read from USDA as to pasture and range conditions but from our conversations with people in the industry, it appears the situation is in much better shape than last year. This are much better in Eastern Texas, Oklahoma and Missouri. Indeed, one can see this in the beef cow slaughter data. For the period March 4 - April 7, total beef cow slaughter in region 6 (AR LA NM OK TX) was just 64,300 head, almost 20,000 head or 23% lower than the same period a year ago. Based on current trends, we expect April cow slaughter in this region alone to be down 25-30% from a year ago. But the situation is still precarious and more rain is needed. Water reservoirs have been depleted after the drought last year and it is necessary to get additional moisture this spring in order to make it through the July and August heat. There are some drought pressures in the Southeast, which have kept slaughter in the region high. Hay acres in 2012 are expected to increase to 57.348 mil, compared to 55.6 mil last year. Overall, some encouraging signs for producers which, if they are sustained for the next few weeks, could encourage some heifer retention and lead to fewer heifers coming to market. But it will take years, many years, to increase the cattle herd.