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Hog report close to trade estimates

by 5m Editor
28 December 2006, at 1:03pm

US - The December Hogs and Pigs Report came in very close to trade estimates and our expectations write Glenn Grimes and Ron Plain.

<?=getCodeSnippet(52);?>The total number of hogs on farms December 1 was up 1.1% from a year earlier, the same as the average of the trade estimates. The USDA estimate for the breeding herd was up 1.3%. The trade estimate was for the breeding herd to be up 1%. The market herd was up 1.1%, again the same as the trade estimates. (Table 1)

September-November farrowings were up 0.3%, whereas the trade estimates were for a 0.9% increase. The December-February farrowing intentions in the report indicate a 2.2% increase from a year earlier. The March-May farrowing intentions are for an increase of 0.5% from 2006.

Our demand index for pork at the consumer level for January through November 2006 was down between 3 and 4% based on preliminary data. Good news is that the demand for pork at the consumer level during September-November was flat with a year earlier. Also good news is that the demand for live hogs for January-November was up slightly from the same months in 2005. For September-November 2006, demand for live hogs was up 2.8% compared to this period in 2005, and up a short 1% from this period of 2004.

The stronger live hog demand than consumer demand was due in part to larger pork exports. Also helpful to live hog demand was population growth in the U.S. and increased slaughter capacity.

Pork exports for January-October 2006 were up 11.1% from this period a year ago. Pork exports for these 10 months increased to all major countries except Japan, where exports decreased 7.4% from 2005. Exports increased to Canada 6.5%, to Mexico 16.5%, to Russia 125.3%, to South Korea 46.9%, to mainland China including Hong Kong 8.5%, to Taiwan 1.5%, to Caribbean up 74.3%, and to “Other” 10.4%.

Total pork imports for January-October were down 1.6% compared to this period of 2005, but live hog imports from Canada were up 7.2%. Feeder pig imports were up 12.2% but slaughter hog imports were down 2.4% compared to last year. We expect feeder pig imports from Canada to continue to increase.

Higher corn prices are contributing to some lighter hog weights. The weekly average weight of barrows and gilts in Iowa-Minnesota has been below a year earlier for the last 13 weeks.

If corn prices for 2007 are as high as now seems likely, the cost of producing hogs will be between $50 and $51 per cwt. based on the Iowa State University price series. If our price forecast is close to right, the average-cost producer is likely to lose money for the year.

Based on the Iowa data, the average-cost producer had enjoyed 34 consecutive months of profit at the end of November. At the end of December the consecutive months of profit were probably pushed up to 35. We will need a good winter price rally or these profits are likely to come to an end in the first quarter of 2007.

One wild card as to 2007 slaughter levels compared to 2006 is the disease circovirus. Will the more readily available vaccines for this disease reduce death loss enough to show larger marketings than we have estimated in Table 4? With the current very inelastic demand for hogs, a 1% increase in slaughter due to less death loss would likely be negative to hog prices by about 5%.

Unless demand for hogs grows in the next couple of years, which is unlikely in our opinion, the hog industry will need to downsize some to cover the anticipated higher feed costs.

Commercial hog slaughter at about 27.8 million head in the fourth quarter of 2006 set a new high for the quarter. With one extra slaughter day in the fourth quarter of 2007, another new record high in this quarter next year is almost certain.

Hog slaughter for the month of December was down from December 2005 because of one less weekday for slaughter in 2006. Daily slaughter during December was up slightly, which is consistent with the inventory of 180 lb. and heavier market hogs on December 1. (Table 2)

More than likely, the largest problem hog producers will face in the next couple of years is how to live with high priced corn.

Our estimates for commercial slaughter by quarter and prices for three selected marketing arrangements, based on December 1 market inventories, are in Table 4.

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

 2006 as % of 2005
 Market 101.1
 Kept for breeding 101.3
 All hogs and pigs 101.1
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Table 2. Market Hogs on Farms December 1, U.S.
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 Weight Category 2006 as % of 2005
 Under 60 pounds 101.4
 60 - 119 pounds 100.6
 120 - 179 pounds 102.2
 180 pounds and over 100.1
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Table 3. Sows Farrowing and Intentions, U.S.
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 2006 as % of 2005
 June-August 100.2
 September-November 100.3

 2007 as % of 2006
 December-February 102.2
 March-May 100.5

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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)
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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 25.812 46.92 51.83 69.13
 4 (part.est.) 27.840 41.82 46.07 61.95
 Year(part.est.) 104.692 43.45 47.75 63.85

2007 1 (projected) 26.550 $39 - 42 $43 - 46 $60 - 64
 2 (projected) 25.180 44 - 47 47 - 50 64 - 68 
 3 (projected) 26.400 43 - 46 46 - 49 62 - 66
 4 (projected) 28.600 39 - 42 42 - 45 58 - 62
 Year 106.730 41 - 44 44 - 47 61 - 64
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5m Editor