Contents

Pork/hogs: The Quarterly Hogs and Pigs report released March 28 set out revisions to inventories, farrowings, and litter rates, which go a long way toward explaining recent significant year-over-year slaughter increases. Farrowing intentions published in the report suggest production slowdowns for late this year and into 2009. U.S. commercial pork production in 2008 is expected to be 23.5 billion pounds, a year-over-year increase of 7.3 percent. Prices for 51-52 percent live equivalent lean hogs are expected to range between $42 and $44 in the second quarter and between $40 and $42 for the year. With production costs estimated to be in the low $50 range, many hog operations presently lose between $25 and $35 for each farrow-to-finish hog produced and sold. Large pork supplies appear to be containing retail and wholesale pork prices increases, which in turn, likely buttress both domestic and foreign pork demand. Pork exports in February were 391 million pounds, almost 57 percent above a year ago.

Quarterly Hogs and Pigs Report Makes Important Revisions

USDA released two reports in late March that together provide information necessary to project where the U.S. pork industry might be heading in a market environment dominated by record-high feed costs. The Quarterly Hogs and Pigs report released March 28 set out revisions to inventories, farrowings, and litter rates, which, taken together, go a long way toward explaining recent significant year-over-year slaughter increases. Farrowing intentions published in the report suggest production slowdowns may be ahead for late this year and into 2009. The Prospective Plantings report released March 31 indicates that producers intend to plant 8 percent fewer acres to corn this year compared with a year ago. Larger hog numbers and lower corn supplies point to lower hog prices, higher production costs, and bigger per head losses for the balance of 2008.

The large year-over-year increases in hog slaughter that prompted revisions to litter rates, farrowing numbers, and inventories in the March Quarterly Hogs and Pigs report are largely attributed to the efficacy of recently developed circo-virus vaccines. In particular, the report increased summer and fall litter rates from 9.24 pigs per litter, to 9.27 and 9.26, respectively. Summer 2007 farrowings were revised upwards by 4 percent (121,000 sows). Fall 2007 farrowings were revised upwards by 2.3 percent (70,000 sows). The March report also increased September 1, 2007 and December 1, 2007 inventories of all hogs and pigs by 2.2 percent (1.4 million head), and 2.85 percent (1.85 million head), respectively.

Upward revisions to September inventories and to summer 2007 farrowings and litter rates help to explain large year-over-year slaughter increases in the first quarter of 2008. Upward revisions to December inventories, and to fall farrowings and litter rates, point to increased winter and spring 2008 pork production. Accordingly, USDA added 250 million pounds of pork to the production forecast for the first half of 2008. First-half production is expected to be 11.7 billion pounds, almost 11 percent higher than the same period last year.

Farrowings reported for the winter 2008 quarter indicate that year-over-year larger pork production is expected to continue, at least into the summer of 2008. The March report indicated that winter 2008 farrowings were 2.5 percent larger than producer intentions stated in December, and 5 percent above the same period in 2007. The litter rate for winter 2008 was 9.21 pigs per litter, which, when compared with the winter 2007 rate of 9.09, illustrates the impressive leaps that the industry is capable of taking when it is not struggling with disease problems. Based on the December-February pig crop reported in Quarterly Hogs and Pigs, USDA raised third-quarter pork production by 145 million pounds. Third-quarter pork production is expected to be 5.7 billion pounds, almost 9 percent above thirdquarter 2007.

Farrowing intentions stated in the March report for the spring and summer quarters indicate that higher feed costs and negative producer returns are likely influencing producers’ breeding decisions. Producers’ farrowing intentions for the spring quarter are up only 0.5 percent from a year ago, while intentions for the summer quarter are down over 2 percent.

These breeding intentions may be an early indicator of where record-high feed costs and negative producer returns will take hog production in the United States.

Muted-to-lower farrowing intentions for spring and summer 2008 are perhaps an indication of higher sow slaughter rates, which, in turn, could stem from negative producer returns. Estimated federally inspected (FI) sow slaughter through March 29, 2008 is up about 5.9 percent compared with same period a year ago. A larger year-over-year increase results—6.9 percent—when imported Canadian sows are subtracted from the estimate of FI sow slaughter. Increased sow slaughter suggests that U.S. hog producers are responding to the difficult market environment by culling sows.

U.S. commercial pork production in 2008 is expected to be 23.5 billion pounds, a year-over-year increase of 7.3 percent. Prices for 51-52 percent live equivalent lean hogs are expected to range between $42 and $44 in the second quarter, and between $40 and $42 for the year. With production costs estimated to be in the low $50 range, many hog operations are presently losing between $25 and $35 for each farrow-to-finish hog produced and sold.

Large Pork Supplies Likely Keeping Down Wholesale and Retail Price Increases

Large pork supplies appear to be restraining retail and wholesale pork price increases, likely buttressing both domestic and foreign pork demand. Large yearover- year production increases also contribute to recent increases in pork cold stocks. USDA reported March 1 stocks of pork in cold storage that were 25 percent above year-earlier levels and 6 percent greater than month-earlier levels. Accumulating stocks of pork provide additional evidence that, right now, pork supplies in the United States are plentiful.

Wholesale pork prices—as indicated by the USDA Estimated Pork Carcass Cutout—in March finished more than 13 percent lower than a year ago. Retail pork prices in March were $2.83 per pound, up by less than 1 percent from a year ago. First-quarter prices were $2.84 per pound, up 1 percent from a year ago. It is likely that large pork supplies are moderating retail price increases. Pork exports in February were 391 million pounds, almost 57 percent above a year ago, suggesting that a low-valued U.S. dollar and attractive U.S. pork prices continue to drive foreign demand for U.S. pork products upwards.

Further Reading

-

You can view the full report by clicking here.

April 2008