Quarterly Hogs and Pigs, released September 29th by USDA, reported increases in inventories and farrowing intentions that point to significant production increases in both fourth-quarter 2007 and first-quarter 2008. Fourth-quarter prices for live equivalent 51-52 percent hogs will likely range between $41 and $43 per hundredweight (cwt). First-quarter 2008 pork production is expected to be 5.5 billion pounds, 2.4 percent more than the first quarter of this year. First-quarter 2008 hog prices are expected to range between $41 and $45 per cwt, about 4.4 percent lower than first-quarter 2007. U.S. pork exports in August totaled 241 million pounds, 11 percent above August 2006, marking the second consecutive month in which exports increased year-over-year.

Quarterly Hogs and Pigs Points to Large Production Increases

The Quarterly Hogs and Pigs, released September 29th by USDA, reported increases in inventories and farrowing intentions that point to significant production increases in both fourth-quarter 2007 and first-quarter 2008. The September 1 inventory of “all hogs and pigs,” at 64.6 million head, was 3 percent higher than the same period last year. The “kept for breeding” component of the inventory was 1 percent above September 1, 2006. This increase in breeding animals, although modest, represents the 10th in a series of consecutive quarterly year-over year increases that began in June 2005. The largest breeding herd additions occurred in Missouri (+25,000 head, for a 7-percent increase over September 2006), Minnesota (+20,000 head, for an increase of 3 percent), and North Carolina (+20,000 head, for an increase of 2 percent).

The “market hogs and pigs” component of the “all hogs and pigs” inventory increased 3 percent over September 2006. Part of the increase is attributable to a very large June-August pig crop, which, at almost 27.5 million head, was almost 4 percent greater than the same-period pig crop last year. The September report indicates that the very large summer pig crop derives from 3 percent year-over-year larger farrowings, and a record litter rate of 9.19 pigs per litter. June-August farrowings, at 2.986 million head, were greater than producer intentions stated in the Quarterly reports of both June (2.958 million head) and March (2.917 million head).

Larger U.S. imports of Canadian finishing animals also contributed to the higher September inventory of market hogs and pigs. Data from the U.S. Commerce Department indicate that June-August imports of Canadian swine weighing 110 pounds or less were 8 percent higher than a year ago. More Canadian finishing animals are available for export to the United States as the Canadian pork industry adjusts to relatively high foreign exchange values of the Canadian dollar, which makes Canadian pork less competitive in foreign markets. The high-valued Canadian dollar is no small factor, given that in a typical year more than 50 percent of Canadian pork production is exported, compared with about 14 percent for the United States. U.S. hog finishers and packers are expected to import 2.5 million head of swine in both the third and fourth quarters of this year. Total imports for 2007 are expected to be almost 9.7 million head, more than 10 percent above last year.

The larger inventory of market hogs reported in the September report points to yearover- year increases in pork production, along with year-over-year reductions in hog prices for both the fourth quarter of 2007 and the first quarter of 2008. Fourthquarter pork production is expected to be 5.9 billion pounds, almost 5 percent above the same period last year. Fourth-quarter prices for live equivalent 51-52 percent hogs will likely range between $41 and $43 per cwt. First-quarter 2008 pork production is expected to be 5.5 billion pounds, 2.4 percent more than for the first quarter of this year. First-quarter 2008 hog prices are expected to range between $41 and $45 per cwt, about 7 percent lower than first-quarter 2007. Price ranges for both fourth-quarter 2007 and first-quarter 2008 fall below most break-even prices calculated in estimated production costs for farrow-to-finish and finishing operations.

September break-even prices for farrow-to-finish, and finishing operations in Iowa were estimated at about $47 per cwt in Iowa State University’s estimated production cost calculation:
http://www.econ.iastate.edu/faculty/lawrence/Lawrence_website/livestockreturns.htm

Third-Quarter Retail Prices Higher than a Year Ago

Third-quarter retail pork prices averaged $2.92 per pound, 2.3 percent higher than a year ago. The total pork price spread for the quarter was slightly more than $2.05 per pound, more than 5 percent above third quarter 2006. With the wholesale-toretail component of the total spread at $1.67 per pound, compared with $1.57 per pound last year, it appears that retailers were able to pay packers less, and in addition, to push other costs along to the consumer.

August Pork Exports Year-Over-Year Higher for Second Consecutive Month

U.S. pork exports in August totaled 241 million pounds, 11 percent above August 2006, and marked the second consecutive month in which exports increased yearover- year. Exports from February through June of this year were below samemonth shipments in 2006. For the first 6 months of this year, exports were about 3.5 percent below the same period in 2006. It appears increasingly likely, however, that mid-to-late summer marked the beginning of an export recovery. Through August, cumulative 2007 exports of 1.9 billion pounds were off only 1.3 percent compared with the same period last year. While Hong Kong and China were the key drivers pushing July exports above year-earlier levels, they were joined in August by Japan, Canada, and Russia. The table below compares pork exports of August 2007 with those of 2006, highlighting major buyers of U.S. pork products.

Japan imported 88 million pounds of U.S. pork in August, 14 percent more than a year ago. It is likely that the exchange rate between the U.S. dollar and the Japanese yen provided an incentive for Japanese buyers to purchase U.S. pork. The yen price of one dollar fell from 121.41 yen in July, to 116.73 yen in August, evidencing the price incentive that the dollar’s fall in value creates for Japanese buyers.

Canada’s August imports of U.S. pork were 28 million pounds, 9 percent above a year ago. Again, the low-valued U.S. dollar likely provided some impetus to Canadian demand. In August 2006, the Canadian dollar price of one U.S. dollar was 1.12$CN, while in August 2007 the price had fallen to about 1.06$CN. Another factor likely contributing to larger U.S. exports to Canada is lower 2007 Canadian pork production. Weekly Canadian pork production in the summer months of June through August was consistently 2 percent below year-earlier levels.

Russia imported 14 million pounds of U.S. pork in August, 7 percent more than in August 2006. Higher consumer incomes from the economic growth stimulated by high petroleum prices, together with the low-valued U.S. dollar, were likely factors behind Russian imports of U.S. pork in August. However, through August, Russian imports of U.S. pork were 12 percent lower than in the same period last year, likely due to strong competition from Brazilian pork products.

Exports to both Hong Kong and China were also strong in August. Shipments to Hong Kong of 13.5 million pounds were more than 5 times larger than in August 2006. Shipments to China of 14 million pounds were larger than the 9.9 million pounds shipped in August 2006, but lower than the 18.8 million pounds exported in July. Strong exports to both Hong Kong and China are attributed to high pork prices in China, brought on primarily by lower hog supplies from swine disease.

U.S. pork exports, August 2007 and August 2006: major countries and regions
Line no.		August 2007 (1000 lbs.)	August 2006 (1000 lbs.)	Difference (Aug. 2007-Aug. 2006) (1000 lbs.)
1	Total U.S. pork exports	241,478	217,486	23,992
2	Japan	88,425	77,269	11,156
3	Canada	31,307	25,565	5,743
4	Russia	17,561	11,734	5,827
5	Total Japan + Canada + Russia	137,293	114,568	22,726
6	China	14,007	9,947	4,061
7	Hong Kong	13,454	2,558	10,896
8	Total China + Hong Kong	27,461	12,505	14,956
9	Cen. & S. America	5,617	5,344	273
10	Other	11,778	7,502	4,275
11	Total C. & S. Am. + Other	17,395	12,846	4,548
12	Mexico	34,888	43,616	-8,728
13	South Korea	12,974	20,062	-7,088
14	EU-27	5,118	6,207	-1,089
15	Caribbean	4,786	4,954	-168
16	Taiwan	1,563	2,728	-1,165
17	Total Mex. + S. Korea + EU-27 + Car. + Taiwan	59,329	77,568	-18,239
18	Sum (5) + (8) + (11)+ (17)	241,478	217,486	23,992

U.S. exports are expected to be 690 million pounds in the third quarter of this year, 5.6 percent above the same period last year. The fourth-quarter export forecast of 860 million pounds is 6 percent above fourth quarter a year ago. For 2007, U.S pork exports will likely total slightly more than 3 billion pounds, 1.1 percent above 2006. Next year, exports are expected to be about 3.1 billion pounds, about 1.9 percent above the forecast for 2007.

For more information view the full Livestock, Dairy and Poultry Outlook - October 2007 (pdf)

October 2007