Overview

Inventories of hogs and pigs, together with producer breeding intentions reported in the Quarterly Hogs and Pigs report released on December 30, suggest lower pork production and higher hog prices in 2003.

Pork production in 2003 is expected to decline by less than 2 percent. Hog prices are expected to average in the high $30s, compared with the mid $30s in 2002.

Quarter by Hogs and Pigs Report in Line With Expectations

Inventories of hogs and pigs, together with producer breeding intentions reported in the Quarterly Hogs and Pigs report released on December 30, suggest lower pork production and higher hog prices in 2003.

Retail pork prices should increase as well, particularly if current expectations for lower per capita supplies of beef and poultry are realized.

Pork production in 2003 is expected to decline by less than 2 percent, to about 19.4 billion pounds. The 51-52 percent lean live equivalent hog price is expected to average around $38 per hundredweight in 2003, an increase of more than 8 percent over the 2002 average.

Retail pork prices are expected to increase about 1 percent in 2003, to an average of about $2.69.

Lower Pork Production in 2003

The Quarterly Hogs and Pigs report indicated that the June-August 2002 pig crop was about 2 percent below the summer quarter of 2001. The June August 2002 pig crop will be slaughtered in the first quarter of 2003. The lower June-August pig crop, plus anticipated imports of slaughter hogs and feeder pigs from Canada should leave the first quarter 2003 slaughter about unchanged from the same period a year ago.

The September-November 2002 pig crop came in 2 percent lower than a year ago. The September-November pig crop is typically slaughtered in the second calendar quarter of the following year.

Thus, the second quarter 2003 slaughter is expected to feel the brunt of the lower pig crop. Despite higher live imports, the second quarter 2003 slaughter is expected to fall by more than 2 percent.

Second farrowing intentions for the December-February quarter of 2003 came in at 1 percent below the same period in 2002, and unchanged from the first intentions reported in the September quarterly report. If producer intentions are realized, slaughter in the third calendar quarter of 2003 should fall more than 2 percent below 2002’s summer slaughter.

Producers indicated intentions to farrow 3 percent fewer sows in the March-May 2003 period. If producer intentions are realized, slaughter in the fourth quarter of 2003 should fall almost 2 percent below the same period last year.

Producer Returns Are Key to Herd Rebuilding, Timing Uncertain

Higher hog prices in 2003 could go part of the way toward creating incentives for producers to retain gilts for breeding herd rebuilding. While higher hog prices this year will improve producer returns, feed costs will be another key to herd rebuilding decisions. Consequently, the industry will focus on weather trends in the Corn Belt States. “Normal weather conditions” could bring about lower feed costs that would support producer returns.

Historically, producers have increased the number of sows farrowing after 6 to 9 months of above-breakeven returns. But the ongoing changes in the U.S. pork sector structure may also have altered the timing of producer decisionmaking, adding even more uncertainty to forecasting turning-points of hog production cycles.

Pork Consumption Higher in 2002, but at Lower Prices

Domestic pork consumption in 2002 was 19.7 billion pounds, which translates into per capita consumption of 51.3 pounds of retail weight pork. On a per capita, retail weight basis, Americans consumed about 1 more pound of pork in 2002 than in 2001.

Increased quantities of pork traded at lower prices in 2002, however. On average, wholesalers paid packers lower prices for pork cuts in 2002, and U.S. consumers paid lower retail prices for the pork purchased at retail outlets. Wholesale pork prices--as measured by the composite cutout-- were 19 percent lower in 2002 than in 2001. Retail prices were about 1 percent lower in 2002 than in 2001.

October Dock Strike Likely Culprit of Slow October Exports

U.S. pork exports in October were lower than anticipated at 121 million pounds, down more than 2 percent from September, and almost 4 percent from October 2001.

It is likely that some Asia-bound exports were slowed by the West Coast dock strike. Japan’s cumulative share of U.S. exports fell below 50 percent for the first time in 2002, suggesting that the strike might have hindered shipments into Japan’s traditionally active holiday pork market. At least part of the seasonal increase in fourth-quarter U.S. pork exports is likely to be made up in the November-December period.

In total, through October the United States exported 1.32 billion pounds (in carcass weight equivalents), an increase of almost 3 percent over the same period in 2001.

Under the terms of the free-trade agreement between the United States, Mexico, and Canada (NAFTA), Mexican barriers to pork imports were rescinded on January 1, 2003. However, on January 7, the Mexican Pork Council petitioned its Secretariat of Economy, charging that “Imports of pork meat from the United States of America have allegedly come into the Mexican market at prices significantly below the cost of prooduction… exporters and importers of selected U.S. pork meat, particularly hams and shoulders, practiced price discrimination from April 1 to September 2002.”

The Mexican Pork Council seeks relief in the form of countervailing duties and/or compensatory duties on selected cuts of imported U.S. pork.

Respondents to the petition have 30 working days to respond to questionnaires required from the Secretariat. Preliminary findings of the Mexican Government’s investigation will be reported in about 4 months.

Mexico is the second largest export market for U.S. pork, after Japan. In October, Mexico accounted for about 20 percent of total U.S. pork exports.

Since October 1998, Mexico has restricted imports of U.S. live hogs with countervailing duties to compensate producers there for what the Mexican Government maintains is underpricing of U.S. hogs imported into Mexico.

Imports of Feeder Pigs from Canada Achieve Record Level in October

The U.S. Census reported that the United States imported 393,000 feeder pigs from Canada in October, the highest number ever. Moreover, feeder pigs accounted for 71 percent of imports, also a record.

Through October, the number of feeder pigs imported from Canada increased by more than 20 percent, while the number of slaughter hogs decreased by more than 7 percent. The slowdown in U.S. slaughter hog imports is likely related to both an increase in slaughter capacity in Canada, and more intensive use of existing Canadian capacity. In Ontario, a new plant in Mitchell and an expansion of an existing plant in Breslau increased capacity by about 9,000 head per week.

Moreover, increased flexibility of labor rules allowed two major plants in Ontario to begin running Saturday shifts during the September-January period when demand for slaughter space is highest. In Manitoba, the Maple Leaf plant achieved its goal of 40,000 head per week in 2002.

In Alberta, the 2002 slaughter increased almost 17 percent over the kill in 2001, suggesting that the investments made by the new Quebecois owners of the province’s major slaughter facility have allowed it to increase production.

Further information

Links

For more information view the full Livestock, Dairy and Poultry Outlook - January 2003 (pdf)

Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - January, 2003