Pork Production Record High

Despite reductions in the U.S breeding herd reported in the Quarterly Hogs and Pigs report (NASS, USDA), the U.S. pork sector continues to produce record quantities of pork products. Current expectations are for record production of 19.7 billions pounds this year, and 19.8 billion pounds in 2004. Pork production has been sustained by record high imports of hogs from Canada, and higher dressed weights. For the year, hog prices are likely to average almost 14 percent higher than in 2002, at nearly $40 per cwt. Prices next year will likely average about the same as in 2003.

Quarterly Hogs and Pigs Report Tracks with Expectations

Retail Pork Price Percent change from previous month

The Quarterly Hogs and Pigs report issued by USDA on September 26, was in line with previous expectations for breeding decisions, litter rates, and pig crop for the remainder of 2003 and into 2004. Based on the report, about 2.3 percent fewer sows will farrow this year than in 2002. With litter rates expected to increase less than 1 percent over last year, the total pig crop for 2003 is expected to fall almost 2 percent below last year. The smaller pig crop is expected to translate into a total 2003 slaughter that is only 1 percent below 2002, however, and pork production is expected to be fractionally above last year. It appears that the smaller pig crop this year— brought about by breeding herd reductions in 2002 — is being offset by larger U.S. imports of Canadian hogs and slightly higher dressed weights.

U.S. hog imports and heavier dressed weights will likely be key factors next year as well. If U.S. producers’ stated breeding intentions are realized in the first quarter of 2004, and further farrowings and litter rates increase modestly, the pig crop will about equal that of 2003. However, 2004 slaughter and pork production are expected to increase slightly — by less than 1 percent — largely because the United States is expected to import 6.9 million Canadian hogs, and dressed weights are expected to increase by about 1 pound.

Relatively strong demand for pork products is expected to support fourth-quarter 2003 prices for 51-52 percent lean hogs (live equivalent) in the high $30 per hundredweight range, despite expectations of seasonally large weekly slaughters of 2 million head or more. Hog prices are very likely being supported by record high prices for U.S. cattle and beef. Indeed, with weekly slaughters since mid-September averaging 2 million head, hog prices have averaged about $42 per hundredweight. For the year, hog prices are likely to average almost 14 percent higher than in 2002, near $40 per cwt. Prices next year are expected to average about the same as in 2003.

Retail pork prices in August increased to $2.71 per pound, almost 2 percent over July, on the strength of consumers’ looking to pork products for some relief from record high beef prices. The seasonally high fourth-quarter slaughter is expected to hold retail pork prices in the mid-$2.60 range, which is almost 1 percent higher than a year ago and in the first half of 2003. Retail pork prices in 2004 will likely average less than 1 percent higher than this year.

United States to Import More than 7 Million Canadian Hogs in 2003

Weekly Hog Slaughter Percent change from last year

Weekly live hog import data published by USDA/APHIS indicate that the United States imported over 2 million hogs in the third quarter. Total U.S. imports of live hogs for 2003 will likely reach 7 million head, a record high. A comparatively large percentage of third quarter hog imports — 37 percent — were slaughter hogs, a situation fueled by the temporary closure of a slaughter facility in Manitoba, which has since reopened. Another reason for the record-high hog imports from Canada is the lower Canadian slaughter. Third quarter slaughter in Canada was almost 2 percent below a year ago, a probable reflection of weak slaughter margins. Factors pressuring Canadian margins include increased year-over-year hog supplies, and a stronger Canadian dollar that makes Canadian pork products less competitive in foreign markets. The strength of the Canadian dollar is a significant factor for the Canadian pork industry, which last year exported 47 percent of its annual production.

Finally, there is some evidence of recent weakness in Canadian pork consumption in favor of beef, in response toadvertising campaigns supporting the Canadian beef industry. The bottom line for the U.S. pork industry is that weak Canadian slaughter margins tend to reduce prices that Canadian processors bid for hogs, which in turn creates incentives for Canadian producers to market hogs in the United States.

The larger than expected slaughter hog imports in the third quarter masked a strong gain in feeder pig imports. Third-quarter feeder pig imports increased 61 percent above a year ago, reflecting a Canadian pig crop 4 percent larger than in 2002, as well as very strong demand by U.S. finishing operations in Corn Belt States.

2004 Hog Imports to Dip Slightly Compared With Record High Imports This Year

Next year, total U.S. hog imports are expected to decline slightly to 6.9 million head, a reduction of about 2.5 percent from 2003. Expectations for fewer slaughter hog imports, smaller growth of the Canadian pig crop, and a slightly larger Canadian slaughter together point to smaller U.S. hog imports next year.

The proportion of feeder pigs to slaughter hogs is expected to return to past trends next year. About 70 percent of U.S. hog imports next year will likely be feeder animals, with the remaining 30 percent largely comprised of slaughter hogs. By comparison, this year the feeder pigs to slaughter hog ratio is expected to average about 68 percent feeder pigs and 32 percent slaughter animals.

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For more information view the full Livestock, Dairy and Poultry Outlook - October 2003 (pdf)

Source: Livestock, Dairy and Poultry Outlook - U.S. Department of Agriculture, Economic Research Service - October 2003