Agricultural economist, Glenn Grimes, Professor Emeritus, University of Missouri Department of Ag Economics told seminars sponsored by the US National Pork Producers Council and Fort Dodge Animal Health at the recent World Pork Expo, "Our problem is not demand, it's supply."

During the World Pork Expo in 2008, Professor Grimes had predicted the swine industry would have a tough year economically, but he had hoped it would turn around.

However, at this year's Expo he extended the predicted losses for another 12 months.

In fact, Professor Grimes estimates a loss to producers of $487 million during the next four months in CME futures contracts.

"We have basically moved sideways in price since H1N1 was announced," he said.

"There is no question the 'non-swine' flu has had an impact on the industry. We're hoping for a seasonal rally but we can't be positive that will occur," he added.

The problems lie with production costs, Professor Grimes said. The three key driving forces influencing the current situation in the US pork industry are oil prices, the nation's biofuel policy and the overall economy.

"High oil prices led to high gasoline prices, high ethanol prices, high corn prices, and red ink for the livestock industry," he said.

"A weak economy is doing the same in reverse."

In fact, since last September, pork producers have lost an average of $23 per pig.

The discovery of HINI in April has also caused pork exports to decrease and has cast a harsh light on the global pork industry.

"The problem has not been the price of hogs, but production costs," Professor Grimes said.

He said that to adjust to the rise in feed costs, the US pig industry has to reduce the pig herd. This has been done to some degree but not enough, he added.

He said that since 1930, the US has reduced sow inventory by 42 per cent and increased annual pork production by 245 per cent, with litter sizes rising and carcase weight increasing, showing a greater production efficiency.

The number of pigs being produced per sow is now averaging more than 20 where in 1990, it was down at around 15 and in the 1930s, it was in single figures.

However, he said that prices are still showing a great deal of volatility, although both prices and demand has been rising for the last few years.

On the international market, China is the largest pork-producing country followed by the EU and then the US, where Japan and Russia are the largest importers of pig meat.

Professor Grimes said that most of the growth in the US pig meat industry can be attributed to foreign trade, although he predicted a 13.2 per cent drop in US exports this year against a backcloth of a 12.4 per cent fall in the global pork trade, and a 48 per cent rise in US exports over the last year.

US net imports were down by 15 per cent last year, equivalent to a 22 per cent drop in production.

Professor Grimes said that slaughter capacity will have to down size by about 10 per cent and this will involve losing slaughter plants. At present, US slaughter capacity stands at 444,925 head.

He said that he expects to see commercial hog slaughter fall by about four per cent this year compared to last – from 116,452 head to 111,738.

Prices are also going to fall to between $59 and $61 per hundredweight, from more than $63 last year.

Professor Grimes concluded that the US pig herd will have to be reduced by five per cent or even as much as 10 per cent in the coming year.

He concluded that farrowings are going to be trending down but there is going to be continued productivity growth. There will also be fewer imports of Canadian hogs/pigs and a decrease in pork exports.

However the industry is going to be hit by weak domestic demand and high feed cost, which will produce losses for producers.

July 2009