US Swine Economics Report

Ron Plain

The only number that did not come in above the average of trade expectations was September-November farrowing intentions. At 106.5% of June 2007’s level, the market herd on June 1 was 1.4 percentage points above the average of pre-release trade estimates.

As expected, USDA revised upward some of their past inventory estimates. Based on the March report, hog slaughter during March-May was expected to be up 7.1%. It actually came in 9.1% above the spring of 2007 (adjusting for the decrease in imports of Canadian slaughter hogs, slaughter of U.S. raised hogs was up 9.8%). As a result, USDA revised up their March market hog inventory by 2.1%. Correspondingly, they also increased the size of the September-November pig crop by 821,000 head.

Improved breeding herd performance helped explain the larger inventory. Pigs per litter in the March-May quarter averaged a record 9.38, up an amazing 2.0% compared to a year earlier and the 19th consecutive quarter above year-ago levels. Because USDA is reluctant to revise their past estimates of the breeding herd, their data now show farrowings per animal in the breeding herd was up a breathtaking 6.5% in June-November, up 4.5% in December-February, and up 1.5% in March-May.

USDA said the inventory of market hogs weighing 120-179 pounds was up 9.5% on June 1 and the inventory of market hogs weighing 60-119 pounds was up 5.8%. If these numbers are right, daily hog slaughter during the third quarter should be up a bit over 7%. If so, expect July-August live hog prices to average close to $50/cwt.

USDA said the inventory of market hogs weighing less than 60 pounds was up 3.7% on June 1, implying fourth quarter hog slaughter will be up roughly 3%, putting pressure on slaughter capacity. (Look for imports of Canadian slaughter hogs to remain light.) I expect fourth quarter live hog prices to average in the low $40s.

USDA forecast June-August farrowings to be down 2% and September-November farrowings to be down 4%. I expect 2009 hog slaughter will be down 4-5% and live hog prices in 2009 will average close to $53/cwt. Unfortunately, the cost of production could average close to $65/cwt, resulting in a loss of $12/cwt or roughly $32 per head.

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