The numbers in last Friday’s Quarterly Hogs and Pigs Report were more of a squeal than music to the ears of pork producers. In essence, there will be more pork, and with high feed prices, profit margins will be marginal, if not totally red.

USDA’s Quarterly Hogs and Pigs report indicated the inventory was up 3% over 2006 levels and from the June 1 report as well. In brief:

• Breeding inventory, at 6.14 million head, was up 1 percent from last year
• Market hog inventory, at 58.5 million head, was up 3 percent from both last year and last quarter.
• The June-August 2007 pig crop, at 27.5 million head, was up 4 percent from each of the last two years.
• Farrowing intentions are for 2.96 million sows farrow during the September-November 2007 quarter, up 1 percent from the actual farrowings in 2006.
• Intended farrowings for December 2007-February 2008, at 2.94 million sows, are up 1 percent from 2007, and up 4 percent from 2006.

The slaughter implications for the next few months are a concern to Purdue ag economist Chris Hurt, “Slaughter capacity will be near maximum and has generated some discussion of the similarities to the disastrous fall of 1998 and casting a bearish tint to price expectations.”

Glenn Grimes and Ron Plain at the University of Missouri agree, forecasting dismal prices along with record slaughter, “October commercial hog slaughter is expected to be a record monthly high at over 10 million head. If this does occur, which seems highly probable, it will be the first month ever in the U.S. with a slaughter of 10 million hogs. With this level of slaughter, we expect the price of 51-52% lean hogs, U.S. basis, to be in the upper $30s to low $40s live weight in the last quarter of 2007.”

However Purdue’s Hurt is not quite that bearish on prices, “Hog prices are expected to be somewhat lower this fall and average in a range from $44 to $47 on a live weight basis for 51-52 percent lean carcasses. Absolute daily lows could move into the lower $40s. Late-October or early-November tend to be the period for seasonal lows. Winter prices are expected to improve about $2 and to average in a range from $45 to $48. Spring and summer prices should be much higher and are expected to average in the very low $50’s.”

One of the issues is weak export demand, but strong import pressure:
• Hurt says: “From 2000 to 2006, growing pork exports required an average increase in U.S. production of 1.2 percent per year. So far in 2007, exports so far are down 3 percent. The industry continues to expand for the export market, which is weak, at least in 2007.”
• Grimes and Plain say: “Live hog imports from Canada continue to increase. For January-July, total live hog imports from Canada were up 11.1%, feeder pig imports were up 7.9%, and slaughter hog imports were up 18.7%. We expect additional increase in live hog imports from Canada; but with Canada downsizing its hog herd, the growth will not continue forever.”

So what about production costs? Hurt says with high prices for corn and soybean meal, the cost of production is expected to be above hog prices for most of the next 12 months, with production costs averaging $51.50 and pork prices averaging $48.50 per cwt. He says there has been a great profit run since early 2004, but it has come to an end.

Summary:
USDA’s Quarterly Hogs and Pigs report last week indicated increases to the breeding herd, the hogs headed to slaughter, and to farrowing intentions for the next two quarters. The expansion, along with increased imports from Canada and weak pork exports means a greater supply of pork, record slaughter rates, and prices declining below the cost of production. Pork market analysts indicate high feed prices will aggravate the situation and producers will see red ink for the first time in nearly 4 years.