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Hurt, Chris

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Pork Industry Heads for Higher Production

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  PORK INDUSTRY HEADS FOR HIGHER PRODUCTION JULY 2007 Chris Hurt 2007 – No. 3 Thank goodness corn prices have now moved lower since pork producers have decided to stay on the course of moderate expansion.  Higher pork production will result in somewhat lower hog prices, but anticipated costs of production have dropped sufficiently to offset these lower hog prices.   Price levels for corn and soybean meal remain one of the large uncertainties for the next 12 months.  The size of the corn crop will come into better focus over the next several weeks and by mid to late-August for soybeans.   The Numbers   The nation’s breeding herd continues a modest increase.  In the June report, the USDA reported that the breeding herd had expanded by almost 1 percent. This is now the 10th quarterly report showing that the breeding herd has been larger (Figure 1). There is no one geographic region that is experiencing more expansion. The slow increase is in keeping with the growth in demand for pork in the domestic and the export market.   The number of pigs per litter continues to set new records (Table 1).  March-May litters averaged 9.15 pigs per litter, a new record.  Reflecting a few more sows and higher weaning rates, the market herd number was estimated to be up by 1.8 percent.  Producers say they intend to farrow 2.5 percent more sows this summer and then .4 percent more in the September to November quarter.   Supplies and Prices   Some upward revisions in pig crops and larger than expected farrowing intentions for the summer will contribute to somewhat greater pork production than had been anticipated.  In addition, corn prices have dropped as of this writing, which if continued, means weights will be higher.  This all means that pork supplies will move up somewhat more than had been forecast prior to the report.   Pork production is expected to rise by 3.2 percent over the next four quarters compared to the average of the last four quarters.  Some of this increase will be absorbed by higher exports; however, per capita pork availability in the domestic market is still expected to rise by nearly 2 percent in the coming 12 months.   Competitive meat supplies will play a role in prices of hogs and pork in the coming 12 months as well.  Broiler production is expected to rise by 2.5 percent and turkey production by over 1 percent.  However, beef production is expected to be down a bit.  If corn prices do stay as low as they are in early July, it is likely that production of other species will increase even more.  Production of broilers and turkeys can respond quickly to lower feed prices.  Cattle on-feed numbers can also increase, along with higher market weights for all species.   Prices of live hogs are expected to average about $48.50 per live hundredweight over the next 12 months based on 51 percent to 52 percent lean carcasses.  Prices for the third quarter are expected to average in the $50 to $54 range.  Last quarter prices are expected to drop to $43 to $47.  Winter prices may improve some to $45 to $49, with second quarter 2008 prices back up to $48 to $50.  Estimated Returns Near Breakeven  Near breakeven is the outlook for farrow-to-finish returns over the next 12 months.  Breakeven is not so bad because it means all costs are covered, including family labor and full depreciation.  Even though the hog price outlook has weakened somewhat with the latest inventory report, lower corn price prospects have compensated.  Over the next 12 months, we are estimating a slight profit of about $.50 per hundredweight.  However, that will mostly come this summer with estimated profits near $5.00 per hundredweight, followed by losses this fall and winter of about $1 to $2, and near breakeven next spring.  Corn and soybean meal prices could still be dynamic over the next few weeks until the size of this summer’s crops become clearer.  Each $1 change in corn prices impact national hog production costs roughly $5 per live hundredweight.   The estimated corn breakeven prices over the next year given current futures price estimates for soybean meal are $4.18 per bushel this summer, followed by $2.85 in the fourth quarter, and $3.06 and $3.77 for the first two quarters of 2008, respectively.   Even with wide swings in anticipated feed prices, pork producers have maintained a steady hand on the reins.  They have continued a modest expansion to supply a growing world demand for their pork products in the face of greater financial risks and uncertainties to themselves.  Implication for the Industry  The industry has just experienced large shifts in the price prospects of primary feed ingredients.  Yet, the industry has stayed on the same course.  This is a reflection of the greater stability of the production sector today, and to the commitment pork producers have to their product.  While profits are expected to be negative this fall and winter, we cannot foresee a period of losses that would result in a liquidation of the breeding herd.   The odds seem to favor continued wide swings in feed ingredient prices.  This means that price risk management on feed purchasing takes on added significance.  It is likely that feed prices may add nearly as much too financial risks in the future as hog price uncertainty.     Issued by Chris Hurt Extension Economist Purdue University   PRODUCTION Percent      PRICES Liveweight PercentProduction Change vs. Price Change vs.Year Quarter Million#s Year-ago Year Quarter $/cwt. Year-ago2005 I 5,136 0.1% 2005 I $52.24 18.2%II 5,022 2.6% II $52.09 -5.1%III 4,999 -0.9% III $50.51 -10.7%IV 5,525 1.7% IV $45.54 -16.2%Year 20,682 0.8% Year $50.10 -4.6%2006 I 5,335 3.9% 2006 I $42.63 -18.4%II 5,008 -0.3% II $48.45 -7.0%III 5,087 1.8% III $51.83 2.6%IV 5,625 1.8% IV $46.13 1.3%Year 21,055 1.8% Year $47.26 -5.7%2007 I 5,396 1.1% 2007 I $46.04 8.0%II 5,140 2.6% II $52.28 7.9%III 5,253 3.3% III $51.74 -0.2%IV 5,853 4.0% IV $45.42 -1.5%Year 21,642 2.8% Year $48.87 3.4%2008 I 5,517 2.2% 2008 I $46.66 1.3%II 5,314 3.4% II $50.30 -3.8% 2006 20072007 as % of 2006thousand head percentInventory  All hogs and pigs 61,687 62,750 101.7  Kept for breeding 6,060 6,116 100.9  Kept for market 55,627 56,634 101.8Market hogs by weight  Under 60 pounds 20,808 21,182 101.8  60-119 13,692 13,894 101.5  120-179 11,485 11,624 101.2  180 and over 9,643 9,934 103.0Sows farrowing   Dec 06 - Feb 07 2,840 2,885 101.6   March 07 - May 07 2,927 2,966 101.3   June 07 - Aug 071 2,912 2,985 102.5   Sept 06 - Nov 061 2,949 2,960 100.4Pigs saved per litter   Sept 06 - Nov 06 9.03 9.11 100.9   Dec 06 - Feb 07 9.03 9.09 100.7   March 07 - May 07 9.08 9.15 100.8Pig crop   Sept 06 - Nov 06 26,187 26,857 102.6   Dec 06 - Feb 07 25,661 26,210 102.1   March 07 - May 07 26,579 27,141 102.11 IntentionsYear Hogs 60-179 Pounds July-Sept Slaughter Ratio1990 20,253 20,346 100.51991 21,201 21,376 100.81992 22,613 23,746 105.01993 22,455 22,777 101.41994 22,970 23,673 103.11995 23,200 23,264 100.31996 22,500 22,711 100.91997 22,576 22,666 100.41998 24,795 25,038 101.01999 24,577 24,960 101.62000 23,957 24,097 100.62001 23,528 23,635 100.52002 24,445 25,120 102.82003 23,780 24,747 104.12004 24,756 25,817 104.32005 24,519 25,515 104.12006 25,177 25,813 102.52007 25,518 26,443 103.6ba Projectedb Mean of past three yearsTable 1.  Hogs and Pigs in the United States, June 1 - - - - -thousand head- - - - -Table 2.  U.S. Market Hogs Weighing 60 to 179 Pounds on June 1, and Commercial Slaughter in Calendar Quarter from July through SeptemberPigs/ Commercial RatiobYear Sows Farrow Pig Crop Litter Year Slaughter Slau/PigCrop93/94 2,885 23,368 8.10 1994 23,673 101.394/95 2,886 23,851 8.27 1995 23,264 97.595/96 2,735 23,054 8.43 1996 22,711 98.596/97 2,684 23,164 8.63 1997 22,679 97.997/98 2,929 25,480 8.70 1998 25,038 98.398/99 2,891 25,247 8.73 1999 24,960 98.999/00 2,798 24,522 8.76 2000 24,097 98.300/01 2,748 23,963 8.72 2001 23,635 98.601/02 2,835 24,857 8.77 2002 25,120 101.102/03 2,769 24,400 8.81 2003 24,747 101.403/04 2,836 25,105 8.85 2004 25,817 102.804/05 2,835 25,343 8.94 2005 25,515 100.705/06 2,840 25,661 9.03 2006 25,813 100.606/07 2,885 26,210 9.09 2007ab 26,697 101.91993 3,220 26,135 8.12 1993 24,574 94.01994 3,390 27,984 8.26 1994 26,315 94.11995 3,170 26,373 8.32 1995 25,197 95.51996 2,930 24,833 8.48 1996 23,832 96.01997 2,911 25,229 8.67 1997 25,143 99.71998 3,086 26,989 8.75 1998 27,586 102.21999 2,986 26,272 8.80 1999 26,723 101.72000 2,885 25,565 8.86 2000 25,714 100.62001 2,870 25,509 8.89 2001 26,470 103.82002 2,941 26,001 8.84 2002 26,715 102.72003 2,886 25,629 8.88 2003 27,608 107.72004 2,870 25,633 8.93 2004 27,192 106.12005 2,882 25,986 9.02 2005 27,485 105.82006 2,927 26,579 9.08 2006 27,980 105.32007a 2,966 27,141 9.15 2007ab 28,902 106.51993 2,972 24,041 8.09 1994 22,742 94.61994 3,107 25,547 8.22 1995 24,224 94.81995 2,976 24,813 8.34 1996 23,651 95.31996 2,718 23,244 8.55 1997 22,308 96.11997 2,946 25,696 8.72 1998 24,775 96.41998 3,054 26,634 8.72 1999 25,579 96.01999 2,920 25,862 8.86 2000 25,019 96.72000 2,889 25,548 8.84 2001 24,578 96.22001 2,878 25,539 8.87 2002 24,148 94.62002 2,883 25,725 8.92 2003 24,654 95.82003 2,918 25,974 8.90 2004 25,717 99.02004 2,905 26,162 9.01 2005 25,529 97.62005 2,918 26,449 9.06 2006 26,205 99.12006 2,912 26,518 9.11 2007 26,751 100.92007a 2,958 27,125 9.17 2008ab 27,112 100.01993 2,982 24,003 8.05 1994 22,965 95.71994 2,997 24,517 8.18 1995 23,644 96.51995 2,815 23,479 8.34 1996 22,201 94.61996 2,731 23,327 8.54 1997 21,831 93.61997 2,939 25,494 8.67 1998 23,628 92.71998 2,993 25,902 8.66 1999 24,288 93.81999 2,844 24,973 8.78 2000 23,105 92.52000 2,838 25,112 8.85 2001 23,280 92.72001 2,889 25,492 8.82 2002 24,280 95.22002 2,833 25,094 8.86 2003 23,922 95.32003 2,856 25,488 8.93 2004 24,803 97.32004 2,888 25,881 8.96 2005 25,028 96.72005 2,900 26,187 9.03 2006 24,835 94.82006 2,949 26,501 9.11 2007p 25,505 96.22007 2,960 27,143 9.17 2008 26,218 96.6a Estimates b Last entry is the mean of previous three years including Canadian live imports (not shown).December-February July-September           Table 3.  U.S. Sow Farrowings and Pig Crop Compared to U.S. Commercial Slaughter (1,000 head) with 7-month Lag 1993 to 2007April-JuneMarch-May October-DecemberSeptember-NovemberJune-August January-MarchYear QuarterCommercialSlaughter(1,000 head)CarcassWeightPer HogPorkProduction (million #'s)PercentChangeYear-Ago1997 I 22,342 187.7 4,194 -4.4II 21,834 187.4 4,091 -0.3III 22,666 185.0 4,196 1.3IV 25,152 189.5 4,766 7.11998 I 24,776 189.2 4,688 11.8II 23,631 187.5 4,429 8.3III 25,038 184.7 4,625 10.2IV 27,523 188.9 5,239 9.91999 I 25,571 190.3 4,865 3.8II 24,292 190.6 4,630 4.5III 24,960 187.2 4,672 1.0IV 26,732 191.2 5,110 -2.52000 I 25,019 192.8 4,824 -0.8II 23,107 193.8 4,478 -3.3III 24,097 191.1 4,606 -1.4IV 25,714 194.8 5,010 -2.02001 I 24,578 195.5 4,805 -0.4II 23,280 195.3 4,546 1.5III 23,635 192.4 4,548 -1.3IV 26,470 197.9 5,239 4.62002 I 24,148 197.9 4,780 -0.5II 24,280 197.6 4,797 5.5III 25,120 192.4 4,832 6.2IV 26,715 196.7 5,255 0.32003 I 24,654 198.7 4,898 2.5II 23,922 198.2 4,741 -1.2III 24,747 194.2 4,807 -0.5IV 27,608 199.2 5,499 4.62004 I 25,717 199.5 5,130 4.7II 24,803 197.4 4,897 3.3III 25,817 195.5 5,046 5.0IV 27,192 199.9 5,435 -1.22005 I 25,529 201.2 5,136 0.1II 25,028 200.7 5,022 2.6III 25,515 195.9 4,999 -0.9IV 27,485 201.0 5,525 1.72006 I 26,205 203.6 5,335 3.9II 24,835 201.7 5,008 -0.3III 25,813 197.1 5,087 1.8IV 27,884 201.7 5,625 1.82007 I 26,686 202.2 5,396 1.1IIp 25,505 201.5 5,140 2.6IIIab 26,570 197.7 5,253 3.3IVa 28,902 202.5 5,853 4.02008 Ia 27,112 203.5 5,517 2.2IIa 26,218 202.7 5,314 3.4a Projectedc Average of the two estimation methods (Table 2 and 3)p Preliminary     Table 4.  U.S. Commercial Slaughter, Carcass Weights, and Quarterly Pork Production 1995-2008                    Year QuarterBarrow and Gilts 6-Mkt Price ($/cwt)Lean Value (Live Price/74.5 yield) ($/carcass cwt)Retail Pork¢/carcass cwt1997 I $51.06 $68.54 231.0II $56.41 $75.72 229.7III $54.45 $73.09 234.5IV $43.69 $58.64 231.01998 I $34.74 $46.63 233.0II $39.42 $52.91 226.9III $33.95 $45.57 231.0IV $19.30 $25.91 226.91999 I $28.83 $38.70 235.8II $35.18 $47.22 238.4III $35.70 $47.92 246.4IV $36.29 $48.71 245.22000 I $41.14 $55.22 249.8II $50.43 $67.69 257.3III $46.43 $62.32 264.3IV $40.78 $54.74 261.32001 I $42.83 $57.49 262.5II $52.05 $69.87 267.0III $51.05 $68.52 275.0IV $37.30 $50.07 273.02002 I $39.43 $52.93 270.9II $34.99 $46.97 267.7III $33.86 $45.45 264.1IV $31.34 $42.07 260.22003 I $35.38 $47.49 260.9II $42.64 $57.23 262.2III $42.90 $57.58 269.8IV $36.89 $49.52 270.22004 I $44.18 $59.30 269.3II $54.91 $73.70 276.8III $56.58 $75.95 287.7IV $54.35 $72.95 282.82005 I $52.24 $70.12 282.9II $52.09 $69.92 286.7III $50.51 $67.80 282.9IV $45.54 $61.13 278.32006 I $42.63 $57.22 277.4II $48.45 $65.03 278.7III $51.83 $69.57 285.8IV $46.13 $61.92 281.02007 I $46.04 $61.80 280.8IIP $52.28 $70.17 283.3IIIAC $51.74 $69.45IVC $45.42 $60.972008 IC $46.66 $62.63IIC $50.30 $67.52P Preliminary CEstimatedTable 5.  Actual and Forecast Live Hog Prices, Lean Carcass Prices, and Retail Pork PricesaA Predicted prices for 2007 (III) forward are made with two equations withthe results averaged.

Pork Industry Heads for Higher Production

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