Pork producers will be glad to see 2008 in their rear view mirror, and got a glimpse of the future with the Quarterly Hogs and Pigs Report released by USDA on Dec. 30. The bottom line: smaller inventories that give rise to the potential for better prices in 2009.

“Retraction” is the word that livestock economists are using to describe the pork industry following months of devastating red ink on balance sheets. Low prices because of expanding herds and high costs because of feed have pinched many producers right out of business. But Iowa State economists John Lawrence and Shane Ellis say the latest USDA estimates contain the news that many producers needed to hear. Their analysis shows that nearly all classifications within the hog industry are on the decline. Total numbers are down 2.2% to 66.7 million head, but the breeding swine inventory is down even more at 2.4%. Market hogs are down 2.1%; all compared to the same report last year.

One of the major statistical drops was the feeder pig inventory, which was down 5%, the result of a reduced domestic pig crop and reduced southbound pigs from Canada. Lawrence and Ellis say, “With farrowing intentions down in the next six months the retraction of the industry continues.”

As an indication of the financial bleeding, Lawrence and Ellis say the final quarter of the year recorded average monthly losses of $21 per head for farrow to finish operators, with December losses at $40 per head. That would be the largest since the 1998 financial meltdown in the pork industry.

Looking ahead, the Iowa State economists say hog prices will be “slightly higher” in the coming year, but the declining cost of corn and other feeds will provide more of an opportunity for a few months of profitability. Their break-even estimate is for $53 per cwt for live hogs on farrow to finish farms, and based on current grain prices.

In addition to the smaller inventory, there are other dynamics at work in the pork market.
• Declines in exports would shift more meat to the domestic meat case. Exports had consumed 21% of production, but the economic upheaval puts a question mark on foreign demand.
• Prices of beef and poultry and consumer demand are generally predictable, and pork prices are expected to be favorable, since beef and poultry supplies will be lower.
• Sow slaughter has decreased, which indicates the contraction is slowing down. It had exceeded 5% earlier in the year, but has declined in the last quarter.

Lawrence and Ellis underscore the importance of the export trade to the pork economy, with the anecdote about Mexico briefly refusing to buy pork from 30 US packing plants. Twenty have been re-certified and 5 more are expected to be re-certified. Although the Christmas incident had little impact on overall trade, it points to the potential for a sudden drop in exports that would impact the 21% of hogs ending up on foreign dinner tables. For the first 10 months of the year, over 4 billion pounds of pork was exported and that is a 60% increase from 2007. Lawrence and Ellis say exports have become a major factor in the pork market with a strong positive influence on prices. A loss of that dynamic would depress pork prices, since 2007 only saw 8% of pork exported.

Summary:
The pork herd continues to get smaller, with a more than 2% decline in numbers for the final quarter of 2008. The latest USDA report indicates a drop in nearly all categories of hogs, including breeding stock. While sow slaughter has also increased, the rate has slowed. The smaller number of hogs indicates a potential toward profitability in 2009, with the help of lower feed prices. For the average farrow to finish producer, the break-even point is expected to be near $53/cwt for live hogs. One of the major positive influences is the strong foreign demand for US pork.