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October 2001: Review of the U.S Hog Market

Our Monthly look at the trends in US Hog Market and what effect thes may have on future prices; Inventory Estimates Surprise Trade, Third Quarter 2001 Slaughter Smaller Than Expected, Smaller Slaughter Forecast For Early 2002, Spring 2002 Slaughter Larger Than In 2001, Hog Imports From Canada Increase. - Written by James Mintert, Kansas State University.
calendar icon 9 October 2001
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Inventory Estimates Surprise Trade

The September 1 U.S. hog inventory estimates released by USDA on September 28th were slightly smaller than expected by most people in the trade. Prior to the report, the trade was expecting inventories on the report to all be about equal to a year ago. Instead, USDA reported that the September 1 all hogs and pigs, market herd breeding herd were all down about 1% compared to a year ago. USDA also revised downward inventory estimates for both the March 1 and June 1 breeding herds and market herds.

Reductions in prior inventory estimates were expected since slaughter has been smaller than projections based on previously available inventory estimates. Revised slaughter projections based upon actual slaughter from January-September and these inventory estimates indicate commercial hog slaughter during 2001 will total approximately 97.2 million head, nearly 1% less than last year.

Third Quarter 2001 Slaughter Smaller Than Expected

Commercial hog slaughter this past summer totaled 24 million head, which was about 1.5 to 2% smaller than the 24.3 to 24.5 million head forecast following the June Hogs and Pigs report and about 1% below summer 2000's slaughter. Weights were heavier than last year which meant the decline in July-September pork production was very small, just 0.2% below a year ago.

USDA Reduces Spring Pig Crop Estimate

This fall's hog slaughter will be composed primarily of pigs born this past spring. USDA reduced its estimate of the spring pig crop which means fall quarter slaughter will be smaller than previously forecast. USDA's reduction in its spring pig crop estimate continues a pattern dating back to the end of last year as spring farrowing and pig crop estimates have been declining continuously since December 2000.

According to USDA's revised estimates, spring farrowings declined 1.4% compared to the previous year and the pig crop declined about 1.5% compared to 2000's. As a result, hog slaughter this fall is now forecast to range from 25.4 to 25.5 million head, or about 1 to 1.25% below fall 2000's slaughter. Heavier weights will offset some of the slaughter shortfall, but commercial pork production is still likely to fall below a year ago.

Smaller Slaughter Forecast For Early 2002

Hog slaughter during the first quarter of 2002 is now projected to fall below the previous year's level. Pigs born this summer will provide the bulk of the hogs slated for slaughter during the first quarter of 2002. Actual farrowings this past summer were substantially smaller than the second intentions reported back in June.

In June USDA reported that U.S. hog producers planned to farrow 2.924 million sows this summer, up 1.2% compared to summer 2000's farrowings. Instead, actual farrowings declined to 2.838 million head, 1.8% below a year ago. Pigs per litter fell slightly below last year's level so the summer pig crop was 2% below 2000's. As a result, commercial hog slaughter this winter is forecast to be near 24 million head, approximately 2% less than during 2001's first quarter.

Spring 2002 Slaughter Larger Than In 2001

Next spring's slaughter hog supply will come primarily from pigs born this fall. 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, however, were smaller than first intentions, totaling just 2.877 million sows, 1.4% more than during fall 2000. Slaughter next spring could rise more than the farrowing intentions indicate, but the difference is likely to be modest. So, look for slaughter next spring to range from 23.6 to 23.8 million head, an increase of 1.4 to about 2.3%.

Expansion To Speed Up

The September Hogs and Pigs report provides the first glimpse of winter quarter farrowing intentions. Winter farrowings will provide the bulk of slaughter supplies for next summer. Producers indicated that profitability was going to finally encourage some expansion. On the survey, producers indicated they planned to farrow 2.838 million sows this winter, 3% more than last year.

It's possible that actual expansion will be less than indicated on the report, particularly in light of uncertainty regarding the impact on consumer demand of the September 11 terrorist attack. But, even if that's the case, slaughter will be larger than this year. As a result, look for a modest year-to-year slaughter increase of about 1.5 to 2% compared to summer 2000.

Pork Export Growth Slowing Down

Hoof and Mouth Disease (HMD) in Europe helped boost U.S. pork exports and reduce pork imports during the first half of 2001, but HMD's impact on pork trade started to wane this past summer. As an example, pork exports during the January-March quarter rose 20% and, during the April-June quarter increased 45%, both compared to the previous year.

Exports were still stronger than last year during July (most recent data available), but the increase was a modest 14%. As trade flows return to normal, look for U.S. pork exports to slow down significantly during the last half of the year. In fact, there is a chance that continued weakness in major pork importers' economies, such as Japan and Mexico, could push U.S. pork exports during the fourth quarter below a year ago.

Similarly, pork imports during the January-March quarter declined nearly 8% during the January-March quarter and declined 17% during the April-June quarter. But during July, pork imports actually rose above last year's level by 12% and imports during the last half of 2001 are expected to increase modestly, compared to last year, as trade patterns return to normal. Larger year-to-year increases in pork imports will take place next year, partly because comparisons will be made with this year's depressed import levels.

Hog Imports From Canada Increase

Live hog imports from Canada have increased dramatically compared to last year. Imports of Canadian hogs into the U.S. rose 24% above 2000's from January through July. Although imports of both feeder pigs and slaughter hogs are up compared to a year ago, most of the increase has been in Canadian feeder pigs entering the U.S for finishing.

For example, during January-July total hog imports from Canada into the U.S rose by 574,266 head, but 77% of that increase occurred among hogs weighing less than 110 pounds. If Canadian hog imports continue at this pace during the last five months of 2001, total imports of Canadian hogs this year will exceed 5 million head and feeder pig imports will exceed 3 million head.

Hog Prices

Average carcass weight barrow and gilt prices in the Iowa-S. Minnesota market averaged $68.65 per cwt. during July-September 2001, up 8.6% from last year's average, but down 2.4% from the spring quarter's $70.33 average. The summer quarter price average was higher than the mid-$60's forecast following release of the June Hogs and Pigs report, largely because summer quarter hog slaughter turned out to be smaller than forecast.

Prices this fall will depend not only on how large hog slaughter and pork production are, but also on how strong consumer demand for pork is in the face of a weakening economy. Forecasts are made under the assumption that domestic pork demand will not weaken appreciably from year ago levels. Iowa-S.

Minnesota barrow and gilt prices are expected to weaken seasonally this fall, however, and average in the middle $50's (carcass weight), slightly higher than last fall's $53.45 average. Winter 2002 barrow and gilt prices are likely to average in the upper $50's (carcass weight), near the previous year's level. Spring quarter 2002 prices are expected to rise seasonally above winter quarter prices, but will probably fall short of this year's $70.33 average and average in the upper $60's (carcass weight).

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 low to mid-$60's (carcass weight).

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 (10/5/01 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 ( in the weekly electronic publication entitled Hog Price & Supply Graphs.

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