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National Hog Farmer
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Hogs & Pigs Special Report
USDA Report Called
"Ugly"
If U.S. and Canadian hog producers needed any more cold
water to shock them into full-scale contraction, Friday’s Quarterly
Hogs & Pigs Report from USDA ought to do it. The numbers are huge and
point to record slaughter in virtually every time period one wants to
discuss in 2008. See Table 1 for the key inventory and farrowing
numbers.
It will be critical for exports to continue to grow and for domestic
pork consumption to remain high. Even at that, producers will now be
looking at carcass-weight cash, negotiated prices no higher than the
mid-$60s this summer, with quarterly averages barely reaching that level
in the second and third quarters and falling near $60/cwt., carcass, in
the fourth quarter.
The best descriptive term I can think of is “ugly.” My price
forecasts as well as those of Iowa State University Ag Economist John
Lawrence and University of Missouri Agricultural Economists Glenn Grimes
and Ron Plain appear in Table 2.
Consider some of the key numbers from the report:
- The U.S. breeding herd was still growing as of March 1, but
the pace has slowed. The March inventory of 6.138 million head was 0.5%
larger than last year. That is the lowest year-on-year number since
October 2005. This expansion has always been quite modest, with the
largest annual increase being 1.8%. While not an actual reduction, this
slower pace is welcome news – especially when combined with Canada’s
1.9% January reduction that most felt will be made larger when
Canada’s April report is published.
- The report passes my “reasonableness” tests with flying
colors. The 180-lb. and over inventory, at 11.14 million head, is 7.8%
larger than one year ago and agrees almost precisely with March
slaughter of U.S.-sourced pigs (i.e. removing the increase in Canadian
market hog imports). In addition, Dec.-Feb. farrowings (3.051 million
litters or 5% more than last year), pig crop (28.094 million head or
6.4% larger than last year), and under 60-lb. inventory (+7.4% from
2007) all fit together nicely. The differences in the percentages are
due to litter size growth and higher imports of Canadian feeder pigs and
the numbers are very close.
- Litter size grew at an exceptionally fast rate of 1.3% during the
Dec.-Feb. quarter compared to one year ago. I have heard several claims
of better performance from circovirus-vaccinated sow herds, but I’ve
also heard that the vaccine hasn’t made much difference in some cases.
This is the largest annual growth rate of Dec.-Feb. litter size since
1995-1997, when we were trading lower-productivity farms for
higher-productivity farms at a rapid pace. That is not the case to any
large degree at present, so this gain is mainly being accomplished on
existing operations. It will be interesting to see if litter size
growth remains high as we go through 2008. The increased incentive to
cull less productive sows will only add to this and other productivity
factors.
- All of the market inventory weight classes show much larger
numbers than one year ago. Part of that is due to increased imports of
Canadian feeder pigs since last October. I expect that increase to
continue, at least until Canada’s sow herd falls enough to restrict
the available supply of pigs coming south. I think that will occur
sometime this fall, but it depends on what Canada’s April Hog
Statistics report says. I’m adding 1.5% to my weekly slaughter
estimates from August through the first quarter of 2009 to account for
the expected increase.
Figure 1 shows historical federally inspected (FI) weekly hog slaughter
and the levels of weekly hog slaughter factoring in the inventory
numbers from this report, with two adjustments. First, I adjusted March
1 through April 10 slaughter downward by 4% to account for the slaughter
surge in March 2007 that I believe was caused by the first
circovirus-vaccinated pigs hitting the market. Second, I added 1.5% to
weekly slaughter totals from August through year-end to account for what
I expect to be continued high levels of feeder pig imports from Canada.
The exchange rate has created a big incentive to feed pigs in the United
States. That incentive will be offset by lower sow numbers and, thus,
lower pig numbers in Canada by year-end, plus the potential economic
impacts of mandatory country-of-origin labeling (MCOOL).
It now appears that producers who have not already priced a substantial
number of pigs for 2008 will see rivers of red ink. It will take
unprecedented demand, either from exports or domestic sales or, more
likely, both to keep this from happening. I do not believe demand can
be strong enough, quick enough. We are going to have to go through this
and it will not be pleasant.
What is very troubling is that things could definitely get worse. Feed
prices could get higher. Large beef supplies are in the offing and
chicken and turkey production remains well above year-ago levels.
Consequently, there will be substantial competition in the marketplace.
Slowing economies may force consumers to trade down in their food
choices, giving lower-priced poultry an advantage.
What can we do in the short run? Get those hogs to town as soon as they
reach a weight that will not take a price discount. Feed prices are now
high enough and hog prices low enough that those last few pounds are
getting less and less profitable – to the point of, perhaps, losing
money. The opportunity is still limited because we are still running
near slaughter capacity each week, but some effort is warranted, given
these levels of supply.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
North American Preview would like to thank our sponsors, PIC, Boehringer
Ingelheim,
Novartis Animal Health US, Inc. and Hermitage NGT
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