The smallest U.S. breeding herd in modern times

CANADA - Jim Long's Weekly Pork Commentary this week focuses on the USDA Quarterly Pigs and Hogs report released on Friday which highlights amongst others, that the breeding herd is is now the smallest in modern times and the liquidation pace is not slowing down.

30 September 2003

6 minute read

The smallest U.S. breeding herd in modern times - CANADA - Jim Long's Weekly Pork Commentary this week focuses on the USDA Quarterly Pigs and Hogs report released on Friday which highlights amongst others, that the breeding herd is is now the smallest in modern times and the liquidation pace is not slowing down.

Jim Long President, Baconmaker Genetics / Wood Lynn Farms, Inc.

View the actual Quarterly Pigs and Hogs Report for September 2003 here

September 1 USDA Hogs and Pigs Report

The U.S. breeding herd is now the smallest in modern times. Here is a snapshot of the liquidation that took it there:

U.S. Breeding Herd, millions of hd
March 1, 2002	6.236
September 1, 2002	6.054
September 1, 2003	5.882

Compared to March 1, 2002, the U.S. breeding herd is -354,000/-6%. The liquidation pace since then has averaged 4,500 head/week and is not slowing down. Since the June 1, 2003 Report the breeding herd has declined 58,000---more of the same 4,500 head/week pace.
Liquidation at a 4,500 head/week clip (nearly 1,000 hd each week day) is certainly no sign of expansion. It's a reflection of negative margins. We expect liquidation and lower production capacity to continue through the 4th quarter.

Pig Crop: USDA reports the June-August pig crop was 25.150 million. This is the smallest pig crop in the Jun-Aug quarter since 1996, 7 years ago. Considering the U.S. population has grown by over 25 million people since 1996, with pork demand growing in parallel, we believe the pig crop size is positive to future prices.

September 1 USDA Market Inventory: The total market inventory is 53.741 million head. That's 1 million fewer hogs than year ago, 3 million fewer than 1998.

The under-60-lb inventory is 19.862 million head, the lowest under-60-lbs inventory since 1996.
The over-180-lb inventory is -5% year ago and jibes with slaughter since September 1 which has been -4.2% year ago.

Other observations:

Jun-Aug pigs per litter was 8.9, the same as a year ago.
North Carolina held steady at a breeding herd of 1 million. What constancy! Elsewhere, there is significant change in where sows call home.
- Breeding herd growth was in the Southwest and parts of the western corn belt.
  
  States adding 10,000-plus sows
  Minnesota +10,000
  Nebraska +15,000
  Oklahoma +30,000
- Breeding herd liquidation occurred in every state in the eastern corn belt, part of the western corn belt. plus Colorado. Iowa's breeding herd is at 1.020 million, 80,000 smaller than a year ago, and North Carolina is knocking at the door of number 1 in sows. Who'd have thought this could ever happen?
  
  States shedding 10,000-plus sows
  Arkansas -10,000
  Colorado -35,000
  Illinois -10,000
  Indiana -30,000
  Iowa -80,000
  Michigan -20,000
  Missouri -20,000

Summary/analysis:

The smallest U.S. breeding herd in modern times.
The continuing pace of breeding herd liquidation is almost 1,000 head/week day.
The Jug-Aug pig crop is the smallest in 7 years.
Market inventory is almost a million head smaller than a year ago.

We think hog prices should hold near current Futures prices through the fall. Hog prices will be supported by beef prices that are at or near record levels. A counter effect will come from more hogs and feeder pigs entering the U.S.from Canada due to the moratorium on Canadian cattle exports. Our supply and demand expectations have us bullish for profitable prices in 2004.

Springhill Re-opens

The Springhill hog slaughter plant in Manitoba, having been closed all summer, is re-opening---thanks to a $3 million loan from the Province of Manitoba. At capacity, Springhill can slaughter 25,000 head/week. Expectation are that it will attempt to reach 10,000/week as soon as possible. The re-opening is welcome news for Manitoba hog producers who had been left scrambling for shackle space.

Maple Leaf to Buy Schneiders from Smithfield Foods

Maple Leaf Foods has agreed to purchase Smithfield Foods' shares in Schneider Corp of Canada. Maple Leaf, with sales of $5.1 billion, is Canada's largest food company. Smithfield is the world's largest hog producer and processor. Schneiders is an added-value pork processor and food company with historically strong brand recognition and annual sales of $1.2 billion.

Schneiders changing hands from Smithfield to Maple Leaf will have consequences for both companies and for producers.

For Smithfield: Smithfield bought shares and assumed debt in Schnieders for $178 million (US). Smithfield has agreed to sell Schneiders to Maple Leaf for $378 million. Smithfield will accomplish two things.

First, it gains a couple of hundred $million to take on Cargill in the battle for Farmland Foods.
Second, Smithfield gets to shed 3,400 head/day slaughter capacity in Canada where, with the advent of COOL, there would be little opportunity of pork production linkage within the Smithfield organization.

For Maple Leaf: Maple Leaf, by purchasing Schnieders, acquires the premier meat brand in Canada. Even though Maple Leaf gets only another 3,400 head/daily hog killing capacity, doesn't matter. Maple Leaf already had enough slaughter capacity. The real prize for Maple Leaf is that it will acquire greater leverage with retailers and food service to push their margins higher by assimilating their major competitor and getting its brands. Maple Leaf could have been more profitable had they not paid so much for Schneiders.

For Producers: If Maple Leaf becomes more profitable through greater leverage with retailers and food service, maybe some of the extra money will trickle down to hog producers. But producers in Saskatchewan who will no longer have a stand-alone plant should expect a lower basis price.