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- CRB Fundamentals - 2008 Commodity Articles


Hogs are generally bred twice a year in a continuous cycle designed to provide a steady flow of production. The gestation period for hogs is 3-1/2 months and the average litter size is 9 pigs. The pigs are weaned at 3-4 weeks of age. The pigs are then fed so as to maximize weight gain. The feed consists primarily of grains such as corn, barley, milo, oats, and wheat. Protein is added from oilseed meals. Hogs typically gain 3.1 pounds per pound of feed. The time from birth to slaughter is typically 6 months. Hogs are ready for slaughter at about 254 pounds, producing a dressed carcass weight of around 190 pounds and an average 88.6 pounds of lean meat. The lean meat consists of 21% ham, 20% loin, 14% belly, 3% spareribs, 7% Boston butt roast and blade steaks, and 10% picnic, with the remaining 25% going into jowl, lean trim, fat, miscellaneous cuts, and trimmings. Futures on lean hogs are traded at the Chicago Mercantile Exchange. The futures contract is settled in cash based on the CME Lean Hog Index price, meaning that no physical delivery of hogs occurs. The CME Lean Hog Index is based on the 2-day average net price of slaughtered hogs at the average lean percentage level.

Prices - Lean hog futures prices on the nearest futures chart in early to mid-2007 moved generally higher and in mid-2007 posted a 1-1/2 year high on speculation of large Chinese buying of U.S. pork after Blue-ear virus wreaked havoc on China's pig population. However, that large-scale Chinese buying did not emerge and lean hog prices then retreated. The selling picked up momentum as producers, who were paying record high feed costs due to surging grain prices, were forced into a liquidation mode. Pork prices tumbled to 4-year lows and prices remained on the defensive into the end of the year as meatpackers were slaughtering hogs at record high rates and as pork supplies jumped sharply. Lean hog futures prices finally closed 2007 at 57.87 cents per pound, -6.2% yr/yr from the 2006 close of 61.70 cents per pound. Lean hog prices in 2007 did have support from increased Chinese demand but with the increase in U.S. pig herds and record high slaughter rates, hog prices were unable to sustain any meaningful upmove after mid-year.

Supply - World pork production in 2007 fell 3.9% yr/yr to 94.678 million metric tons. The USDA is forecasting a further drop of 1.8% in 2008 to 92.992 million metric tons. The world's largest pork producers are China with 47.000 million metric tons of production in 2007, the European Union with 22.040 million metric tons, and the U.S. with 9.877 million metric tons. U.S. pork production in 2007 rose +3.3% to 9.877 million metric tons, and is forecasted by the USDA to rise another +2.3% to 10.108 million metric tons in 2007. The number of hogs and pigs on U.S. farms in 2007 (Dec 1) rose by +4.2% to more than a 3-decade high of 65.110 million. The federally-inspected hog slaughter in the U.S. in 2007 rose +4.3% to a record high of 108.138 million head.

Demand - World consumption of pork in 2007 fell by 3.8% yr/yr to 93.839 million metric tons. The USDA is forecasting a further decrease of 1.8% in 2008 to 92.169 million metric tons. U.S. consumption of pork in 2007 rose +3.5% to 8.939 million metric tons, and the USDA is forecasting a further rise of +2.1% in 2008 to 9.129 million metric tons. The U.S. accounted for 9.5% of world consumption in 2007.

Trade - World pork exports in 2007 fell by -1.8% yr/yr to 5.154 million metric tons, and the USDA is forecasting virtually no change for 2008. The world's largest pork exporters are the U.S. with 27% of world exports in 2007, the European Union with 25%, Canada with 20%, and Brazil with 14%. U.S. pork exports in 2007 rose +1.0% yr/yr to 1.373 million metric tons and the USDA is forecasting a further rise of +5.0% in 2008 to 1.442 million metric tons. World pork imports in 2007 rose +2.1% to 4.280 million metric tons, and the USDA is forecasting a further rise of +1.2% to 4.330 million metric tons in 2008. The world's largest pork importers are Japan, which accounted for 28% of world imports in 2007, Russia (20%), the U.S. (11%), South Korea (11%), and Mexico (10%).

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