The US pork farm grew a bit more in the past year and now has 62.7 million head. For a hungry consumer, that is good, for the producer, that is, well, what does that mean? You’ll find out as the farm gate explores what our pork outlook specialists think about the results of last week’s USDA Hogs and Pigs Report. We’ll take a look at where we have been, where we are going, and that bump in the road.

The September Hogs and Pigs report is the one quarterly report that always outdoes its September predecessors. For the past 6 years, it always grows bigger than the last September report says Shane Ellis at Iowa State University in the latest Iowa Farm Report. …and “grow” is the watchword. Ellis says the 6 million-plus breeding herd was up 2%, more than the 1.4% overall increase. Farrowings will be up 1% in the coming quarter based on intentions in the Report, but steady in the first quarter of 2007. That is a bit cautious, according to Ellis, “Uncertainly over corn prices and the increased number of sows slaughtered are primary contributors to the lower than would be expected farrowing intentions in the next six months.”

In addition to the quarterly report, USDA also released a report on the industry structure, which Shane Ellis quotes as saying, “The productive efficiency of operations both above and below the 5000 head benchmark weaned more pigs per litter. This improved efficiency not only comes from a general improvement in production methods, but also a change in the number of smaller and usually less productive small operations. The number of hog operations with less than a hundred head has decreased by 19 percent since 2000 and 3.5 percent since 2004. The number of pigs produced per litter has again set a new record of 9.14 head for all producers and 9.2 head for larger operations with more than 5000 head.”

One of the significant portions of the quarterly USDA Report indicated that hogs in all weight classes are getting heavier. He says more hogs are on feed because pig supplies have increased, while hogs continue to be fed to a finish weight above the 5 year average. In addition to heavier hogs, our total herd is growing, thanks to the generous contributions of Canadian pork producers. But Ellis says the futures market points to profitable prices, despite the growth in weights, farrowings, and Canadian hogs.

Looking back at where prices have been, Ellis says, “Pork prices in the past 12 months dropped and then rebounded by almost $13/cwt, while chicken values have not yet recovered from a similar decline. This has put a larger than usual spread between wholesale values of pork and chicken. Historic seasonality suggests that as the winter months approach demand for meat usually falls and pork values are expected to follow.
Consumers may not have noticed dramatic changes at the meat counter, as retail meat prices remain relatively constant.” And if the herd continues to grow, with slightly softer meat prices, the consumer will still be a fan of pork.

That Canadian issue is worthy of mention, since the slug of extra hogs has just about all moved through the US system. These began as feeder pigs, which were sold into the US in numbers 15% larger than previously, all because the Canadian government put a $1.65 tax on US corn, making feed more expensive. The tariff is now gone, the flood of southbound pigs has receded and we are nearly back to normal.

That is where we have been, but where are we going, particularly with an economic bump looming down the road. Purdue University’s Chris Hurt says higher corn prices will be shifting from speculation into reality and that will mean higher production costs and lower finishing weights. “Marketing weights are expected to begin to drop below year-previous levels for this fall and continue lower through next year due to much higher corn prices. Current estimates are for carcass weights to be down by 1.3 pounds, or .6 percent. Pork supplies are expected to be about 1 percent higher this fall and then nearly unchanged in the winter. The modest expansion in farrowings and increasing number of pigs per litter should move pork supplies nearly 3 percent higher for the spring and summer of 2007.”

Hurt says corn prices in the past year have averaged about $2 per bushel, but the futures market indicates that average will rise about 55¢ for the coming year, with corn prices approaching $3 toward the end of the next marketing year. “This means estimated hog production costs will rise from the very high $30s this fall to about $43 by next summer. The best news is that hog prices are still expected to be above these costs next summer and allow $6 to $7 per hundredweight of profit. If hogs are about $50 next summer, then corn prices would have to be near $4.25 per bushel to eliminate all profits with other costs holding near today's levels. But, these will be the highest hog prices of the year, with averages closer to $47.”

Hurt says the pork industry needs to be cautious on expansion plans until there is a clear view of where corn prices will be. $3 corn may be workable, but any shift in other variables in the equation may be dangerous.

Summary:
The US pork industry continues to grow, both with more farrowings and heavier slaughter weights; however those are expected to soon correct themselves. The latest Quarterly Hogs and Pigs Report indicated the rate of increased farrowings would curtail early in 2007, in line with higher corn prices that will shave the number of heavier hogs coming to market. With $3 corn anticipated later in 2007, higher production costs will still be covered, based on futures prices for hogs. However, any other changes in the industry could pinch pork profits.