Highlights

The second quarter of 2009 ended with both pork production and hog and pork prices below a year ago, which strongly suggests lower product demand. Lower production and lower prices are expected to persist for the balance of this year. Pork exports in May were almost 307 million pounds, 36 per cent below May 2008. It is likely that May exports – particularly to Mexico and Russia – did not register the full negative impacts of H1N1-related slow-down in demand for US pork.

Quarterly Hogs and Pigs Suggests Surging Litter Rates Temper Effects of Modest Breeding Herd Reductions

The Quarterly Hogs and Pigs report, released on 26 June 2009, by USDA, showed continued modest reduction in inventories of US breeding animals. On 1 June, 2009, the breeding inventory was 5.967 million head, 2.7 per cent below June 2008. The year-over-year lower June 1 inventory marks the fourth consecutive year-over-year reduction in quarterly inventories of breeding stock. Reduction of industry breeding capacity is both a necessary and predictable step to restore profitability to the sector, given the magnitude and duration of negative producer returns. Iowa State University estimates average monthly per-head losses at about $22 since October 2007, the point where persistent losses began. [click here for link].

The quarterly report also showed a year-over-year increase in spring litter rates, contributing to a growing string of very strong industry gains. The litter rate for March-May was calculated at 9.61 pigs per litter (ppl), two per cent greater than a year ago (9.38 ppl) and 4 per cent above 1 June 2007 (9.2 ppl). Since 2000, quarterly year-over-year increases have averaged almost one per cent. Since 2007, quarterly litter rate increases have averaged over two per cent. Improvements in litter rates are largely attributable to better herd health, focused management attention to the science and art of breeding, farrowing, and nursery care, and improved genetics.

Quarterly US litter rates, 2000-March/May 2009

If there is a down side to increasing litter rates, it is that they have likely mitigated recent efforts to reduce US hog production. To hold pig crops constant, in an environment where productivity is increasing, farrowings must be reduced. So in order to reduce a pig crop by X per cent for example, farrowing must be reduced by X plus total productivity growth, of which increasing litter rates are an important component. For 2009, farrowings are expected to be 2.8 per cent lower than last year. Expected increases in litter rates plus other sources of productivity are, however, expected to hold pig crop reductions to just under one per cent.

Lower Production, Lower Hog Prices Expected For Balance of 2009

The second quarter of 2009 ended with both pork production and hog and pork prices below a year ago, a combination that strongly suggests lower product demand. The USDA estimate for second quarter 2009 commercial pork production, 5.5 billion pounds, is about 1.7 per cent below second quarter 2008. Live equivalent prices of 51-52 per cent lean hogs averaged $42.74 per cwt for the quarter, almost 19 per cent below a year ago. The USDA-estimated pork carcass cut-out for the second quarter of 2009 – a proxy for wholesale value – averaged more than 22 per cent below the same period in 2008. Lower supplies of hogs and pork can yield lower hog and wholesale pork prices, only when packer demand and wholesale demand have declined.

Lower production and lower prices are expected to persist for the balance of this year. Both third and fourth quarter commercial pork production is expected to be lower than a year ago. The third quarter production estimate, 5.47 billion pounds, falls almost three per cent below a year ago. Fourth quarter production is expected to be six billion pounds, or almost two per cent below last year. Lower quarterly estimates for the second half of 2009 are a product of expected lower year-over-year hog slaughter, which in turn derives from lower farrowings and lower live imports from Canada. Higher estimates for average dressed weights, from lower expected feed costs, are expected to mitigate slightly the decline in slaughter numbers. Soft product demand – both domestic and export – is reflected in estimated second half 2009 hog prices: third quarter prices are expected to average between $44 and $46 per hundredweight (cwt), more than 21 per cent below third quarter 2008. Fourth quarter prices are expected to average between $39 and $41 per cwt, almost five per cent below last year. For 2010, commercial pork production is estimated at 22.5 billion pounds, more than one per cent below 2009. Hog prices next year are expected to average between $46 and $50, almost 13 per cent above prices this year.

Pork Exports, Imports Lower in May

Pork exports in May were almost 307 million pounds, 36 per cent below May 2008. The three largest export destinations in May were Japan (-15 per cent compared with last May), Mexico (-3 per cent), and Russia (-1 per cent). It is likely that May exports – particularly to Mexico and Russia – did not register the full negative impacts of H1N1-related slow-down in demand for US pork. The disease came to the world's attention in late April. Normal lags in exporting US pork products ordered before consumers became aware of the disease likely prevented the full demand effects of the disease from being felt until well beyond May.

US pork imports were almost seven per cent lower in May. Imports totaled almost 63 million pounds, with US purchases of Canadian pork products up, year-over-year, by more than five per cent, while imports of Danish products were more than 28 per cent lower than last May. So far in 2009, Canada has accounted for almost 81 per cent of US pork imports. Almost 11 per cent of imports are of Danish origin. US packers and swine finishers imported 36 per cent fewer live swine from Canada in May, than a year ago. Of the almost 496,000 head imported in May, almost 85 per cent were finishing animals, compared with 80 per cent in May 2008. Finishing animal imports were almost 33 per cent lower than last May. Slaughter animals comprised almost 15 per cent of May imports versus almost 20 per cent a year ago. In general, country of origin labelling (COOL) and an on-going industry contraction in Canada are the key factors limiting US live swine imports.

Further Reading

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