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Commentary: Hogs and Pigs Report - September 2004

by 5m Editor
30 September 2004, at 12:00am

US - Glenn Grimes and Ron Plain comment on the USDA's Quarterly Hog Outlook report for September 2004.

Ron Plain
Ron Plain

The September USDA Hogs and Pigs report came in more positive than our estimates, especially the market inventories for 60-179 lb. hogs. If the report is correct, hog marketings in the fourth quarter will be down about 1% on a daily basis compared to last year, but the total for the quarter will be down 2% due to one less weekday for slaughter in 2004 than last year.

Because hog slaughter has run about 2% above the USDA Hogs and Pigs estimate for most of the year, we believe that commercial slaughter in the fourth quarter will run about 28 million head or about 1% above last year.

Certainly, there is a chance that some of the overrun in slaughter this summer was due to cooler than normal weather which contributed to faster rates of gain and producers pulling marketings forward. This we cannot confirm based on a quick survey of about 1.5 million sows.

The 180 lb. and heavier market inventory on September 1 fits quite well with slaughter during September. However, if the report is correct, we will go from an increase in slaughter of about 5% in September compared to a year ago, to slaughter being a little less than last year in October.

Certainly, hog prices this year have been good enough to provide producers the incentive to pull marketings forward. However, slaughter weights in Iowa-Minnesota for the week ending September 18 were nearly 4 lbs. above a year earlier. This implies that the Midwest is actually about 2 1/2 days less current in marketings than a year earlier.

The 6 percentage point drop between the 180 lb. and up market inventory and the 120-179 lb. inventory does not look realistic.

After saying all this about supply, the bigger unknown is demand. If we maintain the year-to-date 12% gain in live hog demand from a year earlier, it will easily overwhelm the increase in supply even if the market inventories are estimated 2 or 3% too low. There was substantial growth in demand in the fourth quarter of 2003. Will demand at the live level continue running around 12% above last year as it has for January-August or will it move back closer to 2003 in the fourth quarter? Certainly the situation of having modest increases in supply and sharply higher prices will not last forever. We are forecasting slightly larger marketings in the fourth quarter of about 2% on a daily basis. We expect some seasonal decline in price but prices should hold in the upper $40 on average for live animals at the terminal markets in October-December.

If slaughter in the fourth quarter is consistent with the USDA market inventory estimates, it will be the smallest seasonal increase between the third and fourth quarters in recent years, including those years when slaughter was declining as part of the hog cycle.

For the first quarter of 2005 we are estimating slaughter to be fairly consistent with USDA's under 60 lb. market inventory estimate or an increase of about 1%. We expect prices to hold in the upper $40s on average at terminal markets if demand holds at the current level.

With an increase of 1% in the breeding herd on September 1, the USDA farrowing intentions figures for the fourth quarter of 2004 and first quarter of 2005 look small compared to the last 5 years. These intentions indicate no productivity growth, which we believe is unlikely. We are building a little productivity growth into our estimates for slaughter in the second and third quarters of 2005. However, there is some possibility that live imports from Canada - especially imports for slaughter - could decline some. However, with the 2.8% increase in Canada's July1 breeding herd, this may be a slim hope.

Our estimates assume demand for pork will hold at the current level through 2005 and the poultry supply will increase. This may be a bit optimistic since in the past demand has tended to be weaker following years with substantial growth in demand.

Pork exports continue to run well above last year even though exports in July were not up as much as in earlier months. Total pork exports in January-July increased 24% from a year earlier. 2004 is almost sure to be the 13th consecutive year with record pork exports. Pork imports for January-July were down 8.5% from the same period a year ago.

Total live hog imports from Canada were up nearly 28% for January-July 2004. We expect these imports to increase in 2005 but at a slower pace.

Cold storage stocks of pork on August 31 were down 10% compared to a year earlier; however, both beef and poultry stocks were up.

Our estimate for slaughter in the fourth quarter of 2005 is 28.5 million head. There is some possibility that this level of slaughter could run into slaughter capacity problems. If so, our price estimates for the fourth quarter are too high. Our slaughter and price estimates by quarter through 2005 are in Table 4.

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

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

Under 60 pounds 101
60 - 119 pounds 99
120 - 179 pounds 99
180 pounds and over 105
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Table 3. Sows Farrowing and Intentions, U.S.
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2004 as % of 2003

March-May 99
June-August 99
September-November 101

2005 as % of 2004
December-February 101
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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 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.) 24.736 51.56 54.91 $72.74 3 (part. est.) 25.835 53.80 56.75 75.00 4 (projected) 28.000 46 - 49 49 - 52 66 - 70 Year (proj.) 104.285 48 - 49 51 - 52 69 - 70 2005 1 (projected) 26.000 46 - 49 49 - 52 65 - 70 2 (projected) 25.250 49 - 52 52 - 55 69 - 74 3 (projected) 26.350 47 - 50 50 - 53 67 - 72 4 (projected) 28.500 42 - 45 45 - 48 63 - 68 Year (proj.) 106.100 46 - 49 49 - 52 66 - 71

5m Editor