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Swine Industry Continues to Retract

by 5m Editor
30 June 2009, at 3:58pm

US - The US swine industry continued on its course of retraction in the first half of this year, writes Shane Ellis.

A year ago, it appeared that things could be turning around for the swine industry. Hog prices were up, domestic demand was strong and exports were growing at an unprecedented pace. There was optimism that despite extremely expensive feed producers would once again regain see some profitability. But after hog prices tumbles from record highs last fall there has been a very apparent need for more reduction in pork supply to even up with weaker demand. From the June Hog and Pig report it is apparent that the retraction continues and hog supplies are starting to decline. The US hog industry has reduced June sow inventories to their second lowest level on record, the lowest being in 2005. While year over year sow numbers have been declining for the past 15 months, market hog numbers have only declined in the past nine.

The US swine breeding herd now numbers 5.97 million head, down 2.7 per cent from last year. Market hog numbers are down 1.9 per cent to 60.1 million head. Total hog numbers are down two per cent from a year ago at just over 66 million head. Farrowing intentions for the next quarter are down more than three per cent, showing producer plans of continued thinning the sow inventories. Forth quarter farrowing are also expected to be down more than two per cent. While the hogs from the first quarter pig crop are currently in the slaughter supply, fall hog slaughter will be similar to the levels of a year ago. Pig supplies have not declined as rapidly as the number of sows in part due to ever improving litter sizes which are 2.5 per cent larger than a year ago. This improvement in efficiency decreases costs per pig and is a tribute to improved animal management, it has offset much of the needed reduction in production capacity. Table 1 summarises the recent swine report for national and Iowa inventories.

In Iowa, the reduction in sow numbers has been much more pronounced, with a 5.6 per cent reduction in sow numbers from a year ago. There are now slightly more than one million breeding swine in the state. Iowa farrowing intentions are down nearly six per cent for the next two quarters. The total number of market hogs in the state has increased 1.4 per cent from a year ago as the state continues to import feeder pigs. However the number of light weight pigs (<60lbs.) is down nearly one per cent. This is an early and albeit weak signal that the number of market hogs being fed may be starting to decline. With the production cost advantage that the state has, Iowa will be one of the last states to see a reduction in the number of hogs finished.

The hog market has been very slowly improving, slowly stepping producers up from the record large losses seen at the beginning of the year. Still losses are in the double digits and the badly needed improvement in hog prices does not appear to be in the near future. Usually during June there is a strong bull market for hogs, but any upturn in prices was much weaker than hoped or anticipated a few months ago. The appearance of the H1N1 virus with its misnomer 'swine flu', weaker than expected exports and a continuing global recession have dampened not only the upturn in prices but also hopes of any improvements for the rest of the year. Eight months ago, there were opportunities to hedge a hog-to-corn margin that would have put a hog producer in the black, but such opportunities do not appear to be available in the near future.

Table 2 contains the ISU and futures market forecast for live hog prices in the next four quarters, along with a forecast for domestic pork supplies. While the number of market hogs available is declining, remember that domestic supply is impacted by the amount of product being exported. Pork exports are down more than 11 per cent this year compared to last. When previously 20 per cent of last year's supply was exported and now more than a tenth of that will remain in the domestic supply, a two per cent reduction in market hogs is quickly mitigated. Hog slaughter weights are also up (an average 3 to 4 lbs) from a year ago. This is due partially due to the more temperate weather of the last spring and producers holding their hogs just a little bit longer in hopes that the expected summer price rally would come.

Additional market information will be available in the July Iowa Farm Outlook newsletter to be released July 1. In addition a new hog margin decision aid will be presented.

Further Reading

- You can view the USDA Quarterly Pigs and Hogs Report - June 2009 by clicking here.