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Commentary: Hogs and Pigs Report - June 2006

by 5m Editor
5 July 2006, at 12:00am

US - Glenn Grimes and Ron Plain comment on the June 2006 Quarterly Pigs and Hogs Report from the USDA.

Commentary: Hogs and Pigs Report - June 2006 - US - Glenn Grimes and Ron Plain comment on the June 2006 Quarterly Pigs and Hogs Report from the USDA.
Ron Plain
Ron Plain

The June 1 Hogs and Pigs report came in a little more bullish for prices than the trade estimates. The total number of hogs and pigs on farms June 2 was at 100.3% of a year ago. The average of the trade estimates was 100.9%. The number of pigs kept for breeding at 101.4% compared to the trade estimate average of 101.3%. The market herd was at 100.2% compared to an average of the trade estimates of 100.9%.

This report indicates hog producers continue to use restraint in building the herd. A number of factors are probably contributing to the slow growth. Certainly the memory of 1998 and 1999 is still fresh in the minds of many hog producers. The more concentrated industry tends to limit short-term flexibility and the permitting process for building new facilities is slow.

Even though this report shows slow growth in the size of the herd, total hog slaughter and pork production are still expected to set new record highs in 2006.

Also of concern is demand for pork - especially at the consumer level. For the January-May months of 2006 our demand index for pork at the consumer level was down 5%. Live hog demand for these 5 months was down, but only 1.6% from a year ago. This was a loss of less than 20% of its growth during 2004 and 2005. We are expecting to continue to lose more of this 2004-2005 growth through the next 12 months.

One bit of good news for the pork industry is that total meat production in the last half of 2006 is expected to be about the same if not somewhat less than a year ago. For the first half of the year, per capita meat consumption in the U.S. is believed to be up about one pound from a year ago.

More good news is that pork exports are expected to continue to grow. The Livestock Marketing Information Center expects pork exports for the year 2006 to be up 10-15% from the record high year of 2005. January-April pork exports were up 16% from these months of 2005. Shipments to Japan, our largest customer, were down 9.7%; however, our shipments to Canada were up 12.4%, to Mexico up 27.9%, to Russia up 141.6%, to South Korea up 64%, to mainland China including Hong Kong up 42.6%, to Taiwan up 63.8%, and to the Caribbean up 59.7%.

Our pork sales for export in April were only up 1.7% from a year earlier. However, this statistic is a bit deceiving because April 2005 exports were large. April 2006 exports were the second largest monthly tonnage of record. Also, exports as a percent of production were a monthly record high in April at 15.9%, and net pork exports as a percent of production were a monthly record high at 11%.

The larger amount of pork being exported and population growth were the two main reasons why our live hog demand index for January-April was down less than half as much as consumer demand.

Cash hog prices in the first half of 2006 would probably have been 7-10% lower had pork exports held at the 2005 level.

Hog slaughter in June was somewhat lower than indicated by the 180 lb. and heavier market inventories in the Hogs and Pigs report. Sow slaughter for June was believed to have been up about 5%. The 2.5% drop in total hog slaughter in June suggests barrow and gilt slaughter in June was down about 3%. The 180 lb. and heavier market inventories were down only 1.8%. This comparison suggests the potential that the report overstates the supply. However, recent reports have been quite accurate.

Slaughter for April-June was about 0.8% below expectations based on the March Hogs and Pigs report. April and May slaughter was above a year earlier and above expectations, so all of the shortfall came in June.

At Pork Expo in early June there was much discussion about circovirus and the recent death loss from this disease. How much of the June reduction was due to circovirus is not known. There was also considerable discussion about conception problems in the late summer of 2005. There are certainly no signs of marketings backing up during June. Barrow and gilt weights in the Iowa-Minnesota market are below year-earlier levels.

Although April-June slaughter was down 0.8% from a year ago, July-September slaughter is expected to be up about 0.5% based on the heavier market weight inventories. October-December slaughter is expected to be up about 0.9% from a year ago. Two factors that might contribute to lower slaughter in the last two quarters of 2006 are continued problems with circovirus and fewer slaughter hogs being imported from Canada.

Farrowing intentions for June-August point to a first quarter 2007 slaughter slightly above the first quarter of 2006. September-November farrowing intentions indicate second quarter 2007 slaughter will be a short 1% larger than 2006.

Farrowing intentions for both the third and fourth quarters of 2006, which are up substantially less than the growth in the breeding herd, suggest productivity growth may be slowing. Productivity growth for the 5-year period ending April 30, 2006, was still above 2% annually.

Litter size on average for March-May this year at 9.08 pigs per litter was a new record high. Producers with 5,000 head or more in inventory averaged 9.2 pigs per litter in March-May this year - also a new record high.

Our estimates for commercial slaughter by quarter and prices for three selected marketing arrangements are in Table 4.

Table 1. Hog Inventories June 1, U.S.
______________________________________________________________

 2006 as % of 2005
 Market 100.2
 Kept for breeding 101.4
 All hogs and pigs 100.3
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Table 2. Market Hogs on Farms June 1, U.S.
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 Weight Category 2006 as % of 2005
 Under 60 pounds 100.9
 60 119 pounds 100.5
 120 179 pounds 100.5
 180 pounds and over 98.2
______________________________________________________________

Table 3. Sows Farrowing and Intentions, U.S.
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 2006 as % of 2005
 December-February 100.2
 March-May 100.5
 June-August 100.1
 September-November 100.8
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Table 4. Estimated Commercial Hog Slaughter by Quarter and Live Hog Prices
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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)
___________________________________________________________________________

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 25.717 $40.82 $44.18 $60.56
 2 24.737 51.56 54.91 72.74
 3 25.817 53.72 56.58 74.73
 4 27.192 50.58 54.35 71.58
 Year 103.463 49.17 52.51 69.90

2005 1 25.538 $48.46 $51.92 $69.33 
 2 25.030 49.08 52.09 70.25 
 3 25.528 46.72 50.51 68.37
 4 27.486 42.20 45.54 61.68
 Year 103.582 46.62 50.02 67.43

2006 1 26.214 $39.60 $42.63 $58.37
 2 (part. est.) 24.835 46.10 48.75 66.90
 3 (projected) 25.655 40 - 43 43 - 46 59 - 63
 4 (projected) 27.725 35 - 38 38 - 41 53 - 57
 Year (proj.) 104.429 40 - 42 43 - 45 58 - 62

2007 1 (projected) 26.300 $35 - 38 $38 - 41 $53 - 57
 2 (projected) 25.300 37 - 40 40 - 43 55 - 59
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5m Editor