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Commentary: Hogs and Pigs Report - September 2006

by 5m Editor
3 October 2006, at 2:39pm

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

The September Hogs and Pigs report came in a little more bearish than the trade reports but close to our estimates. The total number of hogs and pigs on U.S. farms September 1 was up 1.4% from 2005. The breeding herd was up 1.8% and the market herd was up 1.3% from 12 months earlier.

The June-August farrowings were up 0.2% but the pig crop was up 1.1% due to the record high litter size of 9.14 pigs per litter.

The demand for live hogs continues to be the bright spot of the U.S. hog industry. Based on preliminary data the demand for live hogs in June-August was up 0.8% from 2005. However, pork demand for these 3 months was down 5.8% from 12 months earlier. We believe the pork demand at the consumer level is stronger than indicated. In other words, we believe there is error in the retail price data.

A portion of the strong live demand is due to the growth in pork exports. For January-July, pork exports in 2006 were up 12.4% from 2005. However, pork exports in July were 4.1% below 12 months earlier. A part of the reason for the decline in pork exports was due to the large exports in July of 2005 which were 13% above August exports in 2005.

Pork exports for January-July of 2006 amounted to 14.7% of production. Net pork exports (over imports) for the first 7 months of 2006 were at 9.9% of production. Our exports to Japan, our largest pork customer, were down 10% for January-July. For some reason Japan’s purchases of pork in 2006 from all countries are down from 12 months earlier.

Based on Iowa State University, the average hog producer has experienced 32 consecutive months of profit including September. If hog slaughter is close to expectations based on the September market inventories and the strong live hog demand holds through the remainder of the year, producers will set a new record for consecutive number of months with a profit. The record now is 33 months which will likely be broken in November this year.

Live hog demand weakened some in the first few months of 2006 from a year earlier. We believe a significant portion of that demand loss was due to the very low chicken prices early in 2006. Chicken prices have not fully recovered at the current time and that is one reason to have some concern.

We have no concern about slaughter capacity this fall and winter unless we lose a big plant for some reason. On September 12 we set a new record high day for slaughter under Federal Inspection at 419,151 head. When Triumph Pork at St. Joseph, gets both shifts up to capacity, we believe slaughter capacity will be about 426 thousand head per day.

Slaughter in September was up over 4% on a daily basis from a year earlier. Due to one less weekday in September this year from 2005, total September hog slaughter will probably be quite close to a year earlier. The September slaughter level (above expectations by over 1%) is not expected to continue through the remainder of the year. We doubt hog marketings in September were pulled forward due to the strong prices. Average live hog weights in Iowa-Minnesota were 2 pounds per head above a year earlier in late September.

Slaughter for some months have been up and down from a year earlier and the reason has not been completely clear. Hopefully, slaughter for the remainder of the year will be at or below expectations based on the September report.

It now looks like hog slaughter in 2006 will be about 1 million head above a year earlier and the sixth consecutive year for growth in pork production. We believe the odds are high for 2007 to again show increases in pork production from the previous year. If this 7 years of growth in pork production occurs, it will be the longest growth period on record and raises questions about the production cycle. At least, if we still have a pork production cycle, it is much longer than in the past.

The price cycle so far is tracking relatively close to history. The up leg of the current cycle was due to a growth in live hog demand and not due to a reduction in pork production.

Probably the largest challenge hog producers will face in the next few years is grain price increases due to the demand for corn to produce ethanol. Remember for each $0.50 change in corn price per bushel it increases or decreases the cost of producing hogs about $2.50 per cwt.

Our estimates of hog slaughter and prices based on farrowing estimates and market inventories are in table 4.

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

 2006 as % of 2005
 Market 101.3
 Kept for breeding 101.8
 All hogs and pigs 101.4
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Table 2. Market Hogs on Farms September 1, U.S.
______________________________________________________________

 Weight Category 2006 as % of 2005
 Under 60 pounds 101.1
 60 119 pounds 100.8
 120 179 pounds 101.3
 180 pounds and over 102.6
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Table 3. Sows Farrowing and Intentions, U.S.
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 2006 as % of 2005
	 March-May 100.5
	 June-August 100.2
	 September-November 100.9

 2007 as % of 2006
	 December-February 102.2
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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 26.205 $39.23 $42.63 $58.37
 2 24.835 45.81 48.45 65.96
 3 (part est) 25.810 47.30 51.70 69.13
 4 (projected) 27.770 41 - 44 44 - 48 60 - 64
 Year (proj.) 104.620 43 - 44 46 - 48 64 - 65

2007 1 (projected) 26.480 $38 - 41 $42 - 45 $58 - 62
 2 (projected) 25.150 44 - 47 47 - 50 64 – 68
 3 (projected) 26.400 42 - 45 45 – 48 61 - 65
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