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Ron Plain

USDA's June report came in close to trade expectations but the market herd and total herd were slightly smaller than we expected. The total herd was up 0.8%, the breeding herd was down 1.5%, and the market herd was up 1.1% from 12 months earlier (see Table 1). The breeding herd size was consistent with our gilt and sow slaughter data. The 180 lb. and larger market inventory was up only 1.8% on June 1 but slaughter was up about 4.5% on a daily basis for June. We believe increased slaughter hog imports from Canada accounted for no more than one percentage point of this increase. The under 60 lb. market inventory looks small because the reduction is the same as the reduction in the pig crop for March-May (see Table 2). With larger feeder pig imports from Canada, one would expect the under 60 lb. inventory to be up more than the second quarter pig crop.

Demand for pork continues very strong. Preliminary data shows the demand for pork at the consumer level was up about 3% for January-May compared to the same months of 2003. We believe the retail price data underestimates the actual demand. The data shows retail pork chops were about 20 cents per pound below a year earlier for January-May with the wholesale prices for loins up about 20 cents per pound for this 5-month period compared to a year earlier. Another factor is the demand for live hogs shows an increase of over 10% for January-May 2004 compared to 2003. This indicates more than all of the increase in retail prices was bid into live hog prices for the farmer-to-retail spread was 4% smaller than a year ago for the first 5 months of 2004. Why would the marketing margin narrow with a 3.9% larger slaughter than in 2003? When slaughter is up it is normal for the market spread to widen, not narrow.

Earlier we had assumed this strong demand would be short-lived.We now believe a major portion of the stronger demand is due to the publicity about the low carb diets being positive for meat. The publicity has increased the consumption of meat by more of the population than just those who are on the low carb diets. Our estimates for prices during the next year in Table 4 assume the stronger demand will be maintained.

Pork exports for January-April were up nearly 30%. The probabilities appear to be near 100% that 2004 will be our 13th consecutive year with record exports. Nearly 83% of the increase in exports went to Mexico, Canada, and the category labeled "other". Compared to a year ago, pork exports for this 4-month period to Mexico were up nearly 92%, to "other" were up nearly 60%, and to Canada were up nearly 30%.

One can associate about one-fourth of the increase in demand for live hogs with the increase in pork exports. But, when live hog slaughter imports are included, they balance out most of the increase in pork exports. The total pork and live hog import figures indicate that most, if not all, of the increase in live hog demand came from the U.S. market.

Live hog imports from Canada for January-April were up 43.8%. Feeder pig imports were up 31.5% and slaughter hog imports were up 76.4%. Slaughter hog imports in the last half of 2004 are not expected to be much, if any, larger than in 2003 because of very large imports during this period last year.

Compared to a year ago, wholesale ham prices are up substantially more than other wholesale pork cuts. These strong prices for hams are believed to be a result of increased exports of hams to Mexico. Let's hope this demand from Mexico continues.

Cold storage stocks of pork at the end of May were positive to pork and live hog prices. Compared to a year ago, total pork stocks were down 16%, boston butts were down 45%, hams were down 37%, bellies were down 10%, and loins were down 5%.

The heavier weight market inventories indicate about a 2% increase in slaughter for July-September (see Table 3). We have not built in any increase in slaughter hog imports from Canada into our forecast for this period because of the big increase in slaughter imports from Canada during this period of 2003.

For the fourth quarter, slaughter is expected to be down between 1 and 2% with the major reason being one less slaughter day in the October-December quarter this year than last.

With average productivity growth, the farrowing intentions for June-August indicate slaughter in the first quarter of 2005 will be up around 1% over 2004. September-November farrowing intentions also indicate a potential for second quarter 2005 slaughter to be a little above 2004.

Our slaughter and price estimates by quarter for the next year are in Table 4.

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

 Market 101
 Kept for breeding 98
 All hogs and pigs 101
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Table 2. Market Hogs on Farms June 1, U.S.
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Weight Category  2004 as % of 2003

 Under 60 pounds 99
 60 - 119 pounds 102
 120 - 179 pounds 102
 180 pounds and over 102
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Table 3. Sows Farrowing and Intentions, U.S.
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2004 as % of 2003

 December-February 102
 March-May 99
 June-August 99
 September-November 100
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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 25.714 $40.82 $44.18 $60.56
 2 (part. est.) 24.730 51.50 $54.40 $72.80
 3 (projected) 25.300 47 - 50 50 - 53 68 - 72
 4 (projected) 27.426 42 - 45 45 - 48 62 - 67
 Year (proj.) 103.113 45 - 47 48 - 50 65 - 68

2005 1 (projected) 25.900 42 - 45 45 - 48 62 - 67
 2 (projected) 25.000 47 - 51 50 - 53 68 - 72