Review of the U.S Hog Market - January 2003

Our Monthly look at the trends in US Hog Market and what effect these may have on future prices. Written by James Mintert, Kansas State University: Industry Loses Equity Again; Record Large Pork Production; Smaller Slaughter Ahead; Exports Could Improve In 2003; Return to Profitability By Spring; Futures Based Cash Price Forecasts.
calendar icon 30 January 2003
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Industry Loses Equity Again

Iowa-S. Minnesota barrow and gilt prices averaged between $47 and 48 (carcass weight, net of premiums/discounts) during 2002, down about 23% compared to 2001.

USDA’s estimate of the pork cutout value during 2002 was also well below last year, averaging about $57.77, 20% below the prior year. The sharp drop in prices resulted in the industry losing equity yet again during 2002.

Iowa State University’s estimated returns for a farrow-finish hog operation were negative $16.22 per head marketed during 2002.

Although farrow-to-finish returns were positive in 2000 and 2001, the loss in 2002 means most hog producers lost money three out of the last five years and five out of the last nine years.

Perhaps even more important is the fact that the losses incurred during 1998, 1999, and 2002 were large compared to the positive returns in 2000 and 2001. According to Iowa State’s data during ’98, ’99 and ’02, losses averaged $20.06 per head marketed.

During ’00 and ’01, gains averaged just $11.71 per head. Stated another way, losses over the five-year period (’98-’02) averaged $7.35 per head. Any way you look at it, the losses for many hog producers over the last five-years were horrific.

Record Large Pork Production

Commercial hog slaughter during 2002 totaled 100.3 million head, an increase of 2.4% compared to 2001 and was the third largest total on record, trailing only 1999 (101.5 million head) and 1998 (101 million head). Although hog slaughter during 2002 was smaller than in either of those record setting years, pork production was larger.

Commercial pork production hit 19.7 billion pounds in 2002, 2.8% more than in 2001 and 2.1% more than during 1999, when the old record was established.

The rise in pork production occurred because of technology improvements, including heavier carcass weights and improved sow productivity. Dressed carcass weights averaged 196.2 pounds in 2002, up 1.1% compared to 2001.

Since 1980, averaged dressed hog weights have increased 25 pounds per head, or about 15%. Over that time span, weights have climbed an average of 1.1 pounds per head per year as technology improvements, primarily improved genetics and feeding management, made production of larger carcasses that consumers find acceptable possible.

Similarly, sow productivity continues to increase as ever greater numbers of hogs are slaughtered per sow in the breeding herd.

Smaller Slaughter Ahead

Losses during 2002 encouraged U.S. producers to reduce their breeding herds, resulting in a December 1 st breeding herd that was 3.2% smaller than the prior year. The smaller December 1 st breeding herd, combined with smaller pig crops last summer and fall, mean that hog slaughter during the upcoming year will fall below 2002’s. But it looks like the decline will be modest.

Last summer’s pig crop was 1.7% smaller than a year ago and the fall pig crop was 2.4% smaller than in 2001. So, both pig crop estimates point to a modest slaughter decline during the first half of 2003. Look for slaughter this winter to total about 24 million head, a decline of less than 1% compared to a year ago.

The percentage decline in slaughter this spring is expected to be larger than this winter, pushing slaughter down near 23.4 million head, compared to last year’s 24.29 million head.

Slaughter during the last half of 2003 is also expected to fall below a year ago. How much is still somewhat uncertain. Winter farrowing intentions reported on the December report were only 1% smaller than last year, even though the breeding herd was 3.2% smaller.

Actual slaughter this summer is likely to be smaller than implied by the farrowing intentions, perhaps declining about 3 to as much as 4% compared to last year’s 25.12 million head. Fall quarter slaughter is the most uncertain.

Continued losses during early 2003 mean the breeding herd will probably continue to decline and, as a result, fall quarter slaughter could also decline 2 to 3%, compared to fall 2002.

Exports Could Improve In 2003

Year-to-date pork exports (through November) 2001. But all of the increase in pork exports occurred during the summer quarter. Pork exports during October (-3.7%) and November (-1.9%) were below the prior year’s level.

Bright spots in pork exports during the fall were Korea and Hong Kong, where as exports to Japan were smaller than in 2001. Pork exports could improve modestly during 2003, according to the Livestock Marketing Information Center, perhaps rising as much as 5% above 2002’s.

Hog imports were still large during 2002, but the year-to-year increase occurred primarily during the first half of the year. Through November, total hog imports from Canada were up nearly 8% compared to last year.

But imports rose 16.5% during January-June, but actually fell 1.2% during July-November, both compared to last year. As has been the case for a number of years, feeder pig imports (+18.9%) increased more than total imports (7.8%) during the first 11 months of 2002.

Return to Profitability By Spring

Profit prospects for 2003 are better than last year, but it looks like it will be mid-spring before most producers are making money again. Look for commercial hog slaughter this winter to total about 24 million head, down slightly compared to 2002’s first quarter. Weights are expected to be slightly heavier than in 2002, so pork production could wind up near the previous year.

Estimated Iowa-S. Minnesota barrow and gilt prices during January averaged about 14% below last year. Hog prices are likely to strengthen as the quarter unfolds, but the first quarter average still appears destined to average somewhat below last year’s $53-$54 (carcass weight) average, probably in a range of $50-$51 per cwt.

Prices during the second quarter are expected to strengthen compared to the first quarter and compared to last year, partly because competing meat supplies will be smaller.

Last year estimated Iowa- S. Minnesota barrow and gilt prices averaged about $48.50 per cwt. This year prices are expected to average in the mid to upper $50’s as pork production falls below a year ago. The highest prices of the year are expected in late spring or early summer and are likely to rise above $60 per cwt.

Hog prices are likely to remain well above last year this summer and average in the upper $50’s before declining seasonally this fall into the upper $40’s or low $50’s.

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 barrow and gilt price forecasts based upon futures prices at the time of this writing (01/24/03) 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 Western Corn Belt 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.
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