farmgate: What Did The Hogs And Pigs Report Say About Pork Producers?
The US pork industry is growing. That is the upshot from last Friday’s USDA Quarterly Hogs and Pigs Report, which said the June 1 inventory was 1.7% more than it was a year ago. Market hog numbers were 1.8% higher, and the breeding herd was 0.9% more. We’re still expanding in the wake of increasingly expensive feed costs. Would someone please explain that?
We’re glad you asked! But it is going to take a moment because the issues are numerous. First of all, there is demand. Glenn Grimes and Ron Plain at the University of Missouri
say consumers are wanting beef and pork. Pork demand was up .6% for the January to May period and beef demand was up 1.1% for the same period. For live animals, hog demand was up 3.8% and the demand for calves was up 4.7% from 2006 statistics. Retail prices were also up 3.9% from a year ago. Grimes and Plain say, “The available data indicates the stronger live hog demand is due to higher retail prices and lower marketing margins which were down 1.4% in January-May compared to 12 months earlier.”
But the scenario won’t last says Shane Ellis of Iowa State University, “The market is expected to respond with prices slightly below those of a year ago. With the increased production, hog prices will be down from a year ago.” And the Missouri economists agree, “USDA's heavier weight market hog inventories indicate third quarter 2007 slaughter will be up 1.4%. We are estimating a 2.4% increase for the quarter and that may be low based on second quarter actuals. For the fourth quarter, USDA's light weight market inventory indicates a 1.8% increase in slaughter from last year. We are increasing the estimated slaughter to 2.8%.”
Both the Missouri and Iowa State researchers say another reason for increased slaughter is the turnaround in death rate from circovirus. With the development and use of a vaccine, there are more hogs surviving, and when hogs survive in the feedlot they make their way to market. “Considering all of these factors, pork production in the third and fourth quarter of the year will be noticeably higher than a year ago. The market is expected to respond with prices slightly below those of a year ago,” says Shane Ellis at Iowa State.
The expansion in the industry is not concentrated in any one area, but the USDA report numbers indicate it is the result of increased expansion in a multitude of states. In total the US added 56,000 head to the breeding herd. The states that added breeding herd were 20,000 each in MN and MO, 10,000 each in IL and MI, and 5,000 in KS and TX. States not in the top 17 states added 21,000 breeding animals in total. States that experienced a reduction in breeding herd inventories were IN, NE, SD, and WI. IA held steady.
With the increase in the breeding herd, Missouri’s economists say it is all part of the cycle, and we are due for increased production and lower prices. “ From late 1999 to late 2000 there were 13 months of growth in demand for live hogs. From late 2000 to late 2001 there was mixed demand action but losses most of the time for 12 months, then there were 17 months of losses. From mid-2003 to mid-2005 there were 26 months of growth. This growth period appeared to be associated with the popularity of high protein diets. Following the 26 months of growth, there were 14 months of losses in live hog demand. For the last 11 months, there has been growth in live hog demand. A part of these fluctuations in demand for live hogs was probably tied to pork exports.” Pork exports to many nations were down, including a drop of 52 million pounds going to Mexico, compared to 2006.
With the decline in exports, increase in farrowings, slaughter, weights, and steady corn prices and higher soybean meal prices, producers can expect some challenges to profitability. Iowa State’s Ellis says, “Profitability may be reduced from the lower prices, but Iowa farrow to finish operations are estimated to have $48-51/cwt breakeven cost in the next two quarters if corn and soybean meal prices don’t dramatically change. There should be opportunity for producers to remain profitable through the summer and into the early fall, but the late fall and winter months could show some red ink. Producers should consider taking advantage of any breaks in the market to secure lower feed costs.”
Summary:
The Quarterly Hogs and Pigs report indicated increases for market hogs, hog slaughter, breeding herd and farrowing intentions. With the growth in the supply, also comes growth in demand, however, based on forecasts, the supply will surpass the demand, and there will be challenges to profitability.
Posted by Stu Ellis on July 3, 2007 12:56 AM to farmgate