The US breeding herd has grown by 127,000 (+2%) since March of 2004 (30 months). According to the records kept by Iowa State, every month in this time period was profitable for farrow to finish operators. The fact that expansion was only 2% over this 30 month period is a reflection of the general restraint the industry is maintaining.

The breeding herd expansion has been limited, in our opinion, by several factors which include:

• Difficulty to get building permits
• High cost of new construction
• Producer and banker memories of low prices and financial losses
• Sows and feeder pigs from Canada that have filled finishers decreasing the need for US based sows while keeping continental pig supply in balance
• The ongoing challenge for production labour
• Lack of new barn and equipment technology that increases productivity (Barn and equipment design have changed little in the last 15 years)
• Lack of packer and feed company contracts that assume price and cost risk (unlike the mid 90’s)
• In the last few months, the increase of feed input costs and the belief that they will stay high for the foreseeable future
• Old barns going out of production, 1-2% per year

The US breeding herd only moved plus 9,000 in the last three months. Less that 2/10 of 1%. In effect, it was static. In the last couple of weeks, we have seen the US sow slaughter go over 70,000 head per week; the highest weeks since 1999 when there was breeding herd liquidation. Indeed, 70,000 a week would multiply out to over 3.5 million a year.

With a breeding herd of just over 6 million, it doesn’t take a computer to figure out that at any sustained levels of 70,000 a week, we would be seriously decreasing the breeding herd. (Note: A senior procurement official with one of the major sow packing companies told us that the USDA sow kill numbers are quite accurate in his opinion)

When the Canadian January 1 breeding herd data is released, we expect to see a breeding herd decline in Canada. The December/January Canada-USA total will be lower than September/October. We expect the breeding herd of Canada-USA will decline by 1%-2% over the next year.

The US has just over one million more market hogs than 2 years ago (+2%). Over half of the increase in the last year can be attributed to the larger number of small pigs from Canada. In 2006, approximately 15, 000 more a week than 2005, obviously these pigs leave the Canadian inventory and move to the US inventory.

The US is blessed by the increase of slaughter capacity. Now plus 420,000 head a day. Just wait until weekly marketings go below 2 million head, which it will in February and we will see how excess packer capacity translates into higher producer prices.

Bottomline: The US market inventory is quite manageable. As a percentage of packer capacity it is lower than 2 years ago.

Other Points (1,000 head)

• The pig crop in Sept-Nov was 26,551, up 1% from the same quarter a year ago.
• Sows farrowing Sept-Nov were 5,834, steady with a year ago (5,818)
• Sept-Nov pigs per litter were 9.13, up 1% (9.05) from last year’s quarter

Summary

The breeding herd is relatively static with current sow slaughter numbers on the liquidation side. The market inventory is higher, but with fewer hogs in Canada combined with increased US slaughter capacity, it is more than manageable.

Hog prices will be strong through the fall of 2007. They will average over 50 cents/lb live weight. If you grow your own corn, cash flows will be good. If buying feed, breakevens will be north of 45cents live weight. 2007 will be another profitable year for US hog producers. Higher feed prices have had the effect of grounding expansion to a halt. This will save the industry from expansion that would have pushed prices well below breakeven.

Further Information

To read the latest USDA Quarterly Pigs and Hogs report, click here