Summary

Hogs/Pork - Larger U.S. swine numbers reflected in the December Quarterly Hogs and Pigs report, together with USDA forecasts for year-over-year higher quarterly prices for 2008 corn, foreshadow lower 2008 hog prices and continued hog producer losses. Larger hog supplies in 2008 are expected to pressure hog prices lower. Live equivalent prices for 51-52 percent lean hogs in 2008 are expected to range between $41 per cwt (hundredweight) and $44 per cwt, more than 9 percent below prices in 2007.

December Quarterly Hogs and Pigs Points to Strong Increase in 2008 Pork Production

The Quarterly Hogs and Pigs released on December 27, 2007 reported upward revisions in several key inventories: farrowings, pig crops, and litter rates. The revisions help to explain large year-over-year increases in fourth-quarter 2007 production, and point to continued production increases in 2008. The larger numbers of hogs and pigs reflected in the December report, together with USDA forecasts for year-over-year higher quarterly prices for 2008 corn, foreshadow lower 2008 hog prices and continued hog producer losses.

The December report makes upward revisions in market hog inventories for June and September, 2007, and in the variables that determine the spring pig crop. USDA\NASS added almost 1.1 million head of hogs to the previously reported inventory of market hogs for June 2007. The revised June inventory is an important explanatory factor in the comparatively large (+3.3 percent) year-over-year increase in third-quarter 2007 pork production. Upward revisions to the previously reported September 1 total hog inventory (+941,000 head), and to the March-May farrowing numbers (+67,000 head), pig crop (+755,000 head), and litter rate (from 9.15 pigs per litter (ppl), to 9.20 ppl), were important contributors to the expected 9.5 percent increase in fourth-quarter pork production.

Information in the December report points to year-over-year increases in 2008 commercial pork production. The report indicates that production increases in 2008 will likely derive from larger summer 2007 and fall 2007 pig crops, and year-overyear larger December-May 2008 farrowing intentions. The December report raised the June-August pig crop slightly on the basis of slightly larger farrowings and a record-high littler rate of 9.24 ppl. September-November farrowings came in higher than previously reported intentions, and when combined with a continued record-high litter rate of 9.24 ppl, yielded a 4 percent year-over-year larger fall pig crop. First-half 2008 producer farrowing intentions stated in the December report indicate that farrowings will be 1 percent above the December-May period last year. Taken together, a 4-percent year-over-year larger June-November pig crop and 1 percent larger December-May farrowing intentions will likely translate into 2008 commercial pork production of almost 22.8 billion pounds, almost 3.7 percent larger than 2007 production.

Hog Prices Likely To Remain Below Production Costs in 2008

Larger hog supplies in 2008 are expected to pressure hog prices lower. Live equivalent prices for 51-52 percent lean hogs in 2008 are expected to range between $41 per cwt and $44 per cwt, more than 9 percent below prices in 2007. USDA is forecasting 2007/08 corn prices at between $3.70 and $4.30 per bushel, more than 32 percent higher than in 2006/07. Higher feed prices can be expected to widen the existing negative gap between costs of producing market-ready slaughter hogs and the price that producers receive for finished animals. According to Iowa State University’s Estimated Returns for Farrowing and Finishing Hogs in Iowa,
(www.econ.iastate.edu/faculty/lawrence/Lawrence_website/livestockreturns.htm)
the cost of producing a market-ready slaughter animal in December exceeded the hog prices by more than $25 per head

Fourth-Quarter Retail Prices Increase Moderately From a Year Ago

Fourth-quarter retail pork prices came in at $2.88 per pound, 2.5 percent above fourth quarter a year ago. For the year, retail prices were $2.87 per pound, 2.2 percent above 2006. The wholesale-to-retail spread for 2007 was almost 4 percent greater than in 2006. The increase likely represents, in part, higher costs of moving products through the supply chain to the consumer.

November Exports Continue Strong, 2008 Export Forecast Increased

U.S. pork exports for November 2007 were 339 million pounds, 16 percent above November 2006. For the January-November 2007, cumulative exports are 2.8 billion pounds, about 4 percent above the same period in 2006. The top five destinations for U.S. pork products in November were Japan, China, Mexico, Canada, and Russia. Together, these five countries accounted for more than 76 percent of U.S. exports in November.

On the strength of expected low prices from plentiful domestic pork supplies, and a continued competitive U.S. dollar exchange rate, USDA raised the 2008 pork export forecast to 3.7 billion pounds, over 17 percent above the 3.1 billion pounds forecast for 2007.

Further Reading

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January 2008