Pork Production Expected To Rise In 2002

Hog slaughter during 2001 totaled approximately 98 million head, virtually unchanged from 2000. Average slaughter weights were heavier than in 2000, resulting in a pork production increase of just over 1%.

Hog slaughter projections for 2002, based in part on USDA's December Hogs and Pigs report, indicate hog slaughter will rise less than 1% above 2001's. Pork production is expected to rise about 2 to 3% above the previous year as technology and low feed costs encourage marketing hogs at ever heavier weights. The modest rise in pork production will result in hog prices falling below 2001's Iowa-S. Minnesota barrow and gilt average of $61.88 (carcass weight), with an annual average in the mid-to-upper $50's likely.

Report Points Toward Modest Slaughter Increases

USDA indicated the U.S. all hogs and pigs inventory on December 1 totaled 58.774 million head, down less than 1% from a year ago. The breeding herd inventory was 6.209 million head, about 1% smaller than last year's inventory.


Finally, the market herd inventory, at 52.564 million head was also less than 1% below a year ago. Overall, the report indicates that U.S. producers have not expanded their herds, although farrowing intentions and productivity increases indicate both hog slaughter and pork production will rise modestly this year.

The lack of expansion is a modest surprise because the industry has been profitable recently. Following two very difficult years in 1998 and 1999, when farrow-to-finish returns averaged negative $27 and negative $17 per head, respectively, estimated returns for average cost operations were quite positive the last two years.


Iowa State's estimated returns for farrow-to-finish operations averaged $10 per head during 2000 and rose to $14 per head during 2001. In the past, industry profits at these levels would have stimulated some expansion. Difficulty in securing environmental permits likely explains some reluctance to expand as does concern about available shackle space and future pork demand, particularly in light of the uncertainty that existed about economic conditions during fall 2001.

Based on recent ISU production cost estimates and preliminary price projections, average cost hog producers are expected to be profitable again in 2002 as breakevens are likely to be in the low $50's per cwt. (carcass weight).

Fourth Quarter 2001 Slaughter Larger Than Expected

Commercial hog slaughter this past fall totaled 26.5 million head, which was 3% larger than during fall 2000 and approximately one million head larger than forecast following release of the September Hogs and Pigs report.

Average dressed weights increased by over 2% as the industry responded to low feed costs and new feeding technology. The result was October-December 2001 pork production increased 5.3% compared to fall 2000. USDA revised upward its estimate of the spring 2001 pig crop in a belated response to the unexpectedly large fall slaughter, but it still looks like USDA's pig crop estimate is still too low.

Early 2002 Slaughter Forecast Below A Year Ago

Hog slaughter during the first quarter of 2002 is expected to be smaller than a year ago, but somewhat larger than forecast following the September report.

Pigs born during summer 2001 provide the bulk of the hogs slated for slaughter during the first quarter of 2002. USDA still indicates that last summer's pig crop was about 2% smaller than the year before, with a pigs per litter average that was fractionally lower than the previous summer.

The smaller pig crop implies that hog slaughter will fall below a year ago. But slaughter in recent weeks has been larger than expected based on inventories reported by USDA in December. For example, federally inspected hog slaughter from early December through January 11 was 3% larger than a year ago, even though USDA estimated the inventory of market hogs weighing 180 pounds and over was only 1% larger than in 2000. So, it looks like USDA's hog herd inventories might be underestimated.

As a result, commercial hog slaughter this winter is forecast to be near 24.3 million head, down less than the pig crop decline and about 1% below 2001's first quarter.

Spring 2002 Slaughter Near Last Year

This spring's slaughter hog supply will come primarily from pigs born during fall 2001. USDA's June report, which provided the first glimpse of hog producers' fall farrowing intentions, indicated U.S. hog producers intended to farrow 2.905 million sows, a 2% increase compared to fall 2000.

Second farrowing intentions reported on the September report were smaller than first intentions, totaling just 2.877 million sows, 1.4% more than during fall 2000. The December report, however, indicated that actual farrowings totaled 2.846 million head, about the same as in 2000. And, according to USDA the number of pigs per litter actually fell below the previous quarter and the previous year.

In light of recent slaughter patterns, however, actual slaughter is not likely to fall below a year ago. As a result, look for commercial hog slaughter this spring to wind up very close to last year's 23.3 million head.

Summer Quarter Slaughter Up

The December Hogs and Pigs report provides the second survey of hog producers' winter quarter farrowing intentions. Winter farrowings will provide the bulk of slaughter supplies for next summer.

Producers responding to the survey indicated that profitability was going to finally encourage some expansion and that they planned to boost this winter's farrowings to 2.842 million head, about 3% larger than last year.

This is actually a slight increase compared to the 2.838 sow farrowings planned back in September. But it seems odd that winter quarter farrowings will increase roughly 3% when the December 1 breeding herd was actually 1% smaller than last year. In this case it looks like the breeding herd was underestimated so actual farrowings could indeed wind up 2 to 3% larger than last year, which would push commercial slaughter up to about 24.3 or 24.4 million head, an increase of about 3%.

Small 4th Quarter Slaughter Increase Expected

Slaughter during 2002's fourth quarter will be drawn primarily from this spring's pig crop. The December report provides a first glimpse at producers spring farrowing intentions.

Producers responding to the survey indicated they planned to boost spring farrowings by about 1% compared to last year. If producers follow through with their intentions, fourth quarter hog slaughter will rise about 1% compared to last year, which means commercial hog slaughter will total about 26.7 million head.

This is about 900,000 head less than were slaughtered during fall 1998 when U.S. hog slaughter strained system capacity. However, if the industry starts to expand during 2002, hog slaughter during fall 2003 could still approach the record setting hog slaughter of fall 1998.

Hog Weights Still Increasing

There is a strong long-term trend to slaughter all species of livestock at heavier and heavier weights and hogs are no exception. In the mid-1960's, estimated commercial carcass weights averaged about 150 pounds. By the mid-1970's, improvement in genetics and management combined to push averaged carcass weights up to 165 pounds.

Further improvements in technology pushed carcass weights up to 174 pounds in 1985 and 185 pounds in 1995. And weights continued to increase over the last few years. During 2001 commercial carcass weights averaged 196 pounds, 1.3% heavier than the year before. Weights are expected to increase again during 2002, averaging about 199 to 200 pounds.

Pork Exports Getting A Boost From BSE?

Disease had a big impact on pork trade flows during 2001. During the first half of 2001 Hoof and Mouth Disease (HMD) in Europe helped boost U.S. pork exports and reduce pork imports, but HMD's impact on pork trade started to wane during the summer. As a result, pork imports started to climb and export increases faded with pork imports exceeding exports during August and September.

But Japan's announcement in September that it had discovered BSE in the Japanese cattle herd may be providing a boost to U.S. pork exports. Pork exports to Japan during October were up 40% compared to last year and trade reports suggest that pork exports were also up during November and December, despite the fact the Japanese imposed a safeguard tariff on pork imports last summer.

The tariff, which effectively boosts U.S. pork import prices about 25%, will remain in place until the end of March. It's virtually impossible to predict how long the effect of Japanese consumers concern about BSE will continue to affect pork trade, but it looks like it could provide a welcome boost to U.S. pork exports during much of 2002's first half.

Hog Prices

Average carcass weight barrow and gilt prices in the Iowa-S. Minnesota market averaged $50.84 per cwt. (carcass weight) during October-December 2001, down 5.1% from the previous fall's average, but 26% lower than the summer quarter's $68.96 average.


Winter 2002 barrow and gilt prices are likely to average in the mid $50's (carcass weight), slightly below the previous year's level, if slaughter starts to slow down in keeping with the inventories reported by USDA in December.

Spring quarter 2002 prices are expected to rise seasonally from winter quarter prices, but are expected to average in the upper $60's (carcass weight), about 5% below last year's $70.33 average. Prices next summer are forecast to fall below both the spring 2002 average and this past summer's average, with Iowa-S. Minnesota barrow and gilt prices averaging in the high $50's to low $60's (carcass weight).

The lowest prices of the year are expected to occur this fall when carcass weight prices could drop into the mid to upper $40's per cwt.

Futures Based Cash Price Forecasts

Futures prices, adjusted for basis expectations, are a source of continuously updated cash price forecasts. As an example, Western Corn Belt 51-52% lean barrow and gilt price forecasts based upon futures prices at the time of this writing (1/16/02) settlement prices) adjusted for basis expectations are included in a graphical format.

Basis forecasts are based upon the most recent three-year average basis for 51-52% lean barrows and gilts. To provide some indication of the amount of risk present, forecasts based upon the most positive and negative basis of the last three years are also included.


Weekly updates (in graphical form) of these price forecasts are also available on the K-State Livestock & Meat Marketing Web Site (www.agecon.ksu.edu/livestock) in the weekly electronic publication entitled Hog Price & Supply Graphs.

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Information provided by KSU Livestock report. For more information visit the KSU Livestock website.
Reproduced with permission.