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Ron Plain

The March 1 Hogs and Pigs report came in fairly close to the trade estimates and to our estimates. The market herd was estimated up 2.4% from 2003. The total herd was estimated at up 1.9% from 12 months earlier and the breeding herd was estimated to be down 1.7% from a year earlier. The breeding herd was down a little more than the average of the trade estimates or our estimate. The gilt slaughter and sow slaughter data indicated the breeding herd was only down about 1%. However, neither series of data is accurate enough to be sure which may be the closest to the actual number.

The big news in the hog industry in the past several months has been the strong demand. Hog slaughter for the first quarter of 2004 was up almost 4% from 2003. About 1 percentage point of this was due to one more weekday in the first quarter of 2004 compared to 2003. Even with this increase in production, hog prices were 20% to 25% higher than a year earlier.

Our estimate of demand growth for the fourth quarter of 2003 was over 3% at the consumer level and over 9% at the live hog level.

Pork exports are believed to be a significant part of this demand increase. In January 2004 pork exports were up enough over 2003 to account for about 1% of pork production. We do not believe all of this increase in pork exports was due to finding the one cow with BSE in Washington state in December.

In December our pork exports to Japan were down by nearly 15%. In January, U.S. pork exports to Japan were down 2.2%. In December our pork exports to Mexico were up over 55% and to Canada over 25% from a year earlier. In January the increase to Mexico was nearly 78% and to Canada nearly 39%.

We believe there is a possibility that the increase in exports in January accounted for 20-25% of the increase in demand for pork. That leaves 75% or more to be accounted for by some other factor or factors.

Some market observers believe the strong demand for pork, beef, and broilers this year is due, at least in part, to the low carb diets. Most weight-loss diets are fads that come and go. If these diets are a major part of the growth in demand, this growth may not be sustainable. We are concerned that the life of this extremely large increase in demand may be relatively short.

USDA revised the December market inventories in the 120-179 lb. category upwards by 2.5%. The third quarter 2003 pig crop was also revised up by 2.9% from the December estimates.

One of the major uncertainties about hog slaughter in the U.S. this year is how many live hogs will be imported from Canada this year. All of the increase in slaughter hog imports from Canada in 2003 came in the last half of the year. The increase in slaughter imports in January was over 70% and accounted for about 1.5 percentage points of our increased slaughter in 2004 compared to 2003 for this month.

Even though returns to Canadian hog producers and packers in 2003 were impacted substantially by the relatively low North American prices and the increase in the value of the Canadian dollar relative to the U.S. dollar, we do not expect a reduction in the Canadian herd before the last half of 2004. Some observers are skeptical that Canadian producers will reduce production this year because they did not reduce their breeding herd or pig crops following the disaster in hog prices in 1998 and 1999.

We are building some increase in live hog imports into our estimates for the first half of 2004 compared to a year earlier.

Based on USDA's estimate, the average litter size in the U.S. in December-February was up by a little less that 1/2% from a year ago. However, litters per sow increased about 3% for December-February this year compared to last year. The breeding herd on December 1 was down abut 1.5% and the number of sows that farrowed in December-February was up 1.6% from 12 months earlier.

The odds are very high that commercial hog slaughter in the U.S. in 2004 will be a record unless live imports from Canada drop substantially from 2003. Our estimate of slaughter for the second quarter of 2004 is for a 3-4% increase from a year earlier. For the third quarter, an increase of 3% is expected; and for the fourth quarter, a slight decline from 12 months earlier. Our estimates of slaughter and prices by quarter are in Table 4.

There was an increase in U.S. sow and gilt slaughter in late February and March. If these levels of female slaughter continue for several months, we may see lower slaughter in the first quarter of 2005 than our current estimate.

Table 1. Hog Inventories March 1, U.S.
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 2004 as % of 2003

 Market 102
 Kept for breeding 98
 All hogs and pigs 102
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Table 2. Market Hogs on Farms March 1, U.S.
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 Weight Category 2004 as % of 2003

 Under 60 pounds 103
 60 - 119 pounds 103
 120 - 179 pounds 102
 180 pounds and over 101
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Table 3. Sows Farrowing and Intentions, U.S.
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 2003 as % of 2002

 September-November 100
 2004 as % of 2003

 December-February 102
 March-May 99
 June-August 98
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Table 4. Estimated Commercial Hog Slaughter by Quarter and 
 Live Hog Prices 1998-2004 
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 Commercial Terminal Mkt. 51-52% Lean Non-packer-sold
 Slaughter Barrow & Gilt Hogs Hogs (avg. net
Period (mil. hd.) (price/cwt.) (price/cwt.) carcass price/cwt)
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1998 1 24.776 $34.74
 2 23.628 39.42
 3 25.039 33.62
 4 27.586 19.49
 Year 101.029 31.82

1999 1 25.579 $26.55 $28.83
 2 24.288 33.06 35.18
 3 24.953 32.78 35.70
 4 26.724 33.88 36.29
 Year 101.544 31.57 34.01

2000 1 25.039 $39.11 $41.14
 2 23.125 47.99 50.43
 3 24.097 44.19 46.44
 4 25.715 38.33 40.78
 Year 97.976 42.41 44.70

2001 1 24.578 $40.77 $42.83
 2 23.280 50.21 52.05
 3 23.635 48.04 51.05
 4 26.469 34.97 37.30 $51.67
 Year 97.962 43.50 45.81 n/a

2002 1 24.148 $37.23 $39.43 $54.25
 2 24.280 32.77 34.99 50.43
 3 25.120 31.09 33.86 49.66
 4 26.715 28.52 31.34 46.10
 Year 100.263 32.40 34.91 50.09

2003 1 24.654 $33.32 $35.38 $50.40
 2 23.922 39.86 42.64 58.92
 3 24.747 38.66 42.90 59.27
 4 27.608 34.15 36.89 52.36
 Year 100.931 36.50 39.45 55.25

2004 1 (part. est. 25.710 $41.00 $44.25 $60.40
 2 (projected) 24.775 45 - 48 48 - 51 65 - 69
 3 (projected) 25.450 43 - 46 46 - 49 63 - 67
 4 (projected) 27.500 38 - 41 41 - 44 57 - 61
 Year (proj.) 103.435 42 - 45 45 - 48 61 - 65

2005 1 (projected) 25.200 39 - 42 42 - 45 58 - 62
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