March 2007 USDA Hog and Pig Report

US - What should we expect from the future of the hog market, asks Shane Ellis
calendar icon 5 April 2007
clock icon 5 minute read

The national swine herd continues to grow despite the recent increases in feed costs. As of March 1 the national swine inventory was over 61 million head, up 1.3 percent from a year ago. Breed swine now number just over 6 million head, up a percent. Market hogs inventories are over 55 million head up 1.3 percent from last year. Pig crops in the past two quarters have been up 1.6 percent. Sow farrowing in the next quarter are expected to be steady to slightly lower, and then steady to slightly higher over the summer months. Table 1 is a summary of the Hog and Pig Report released March 30.

"Table 1. Summary of 2007 Hog and Pig Report"
US Million Hd % Chg. 2006 Iowa Million Hd. % Chg. 2006
All Hogs 61.10 1.3% 16.60 1.2%
Breeding Herd 6.08 0.9% 1.08 -1.8%
Market Hogs 55.02 1.3% 15.52 1.4%
Under 60 20.27 1.4% 4.69 0.2%
120-179 11.42 -0.1% 3.57 1.4%
180 & Over 10.25 3.8% 3.17 7.1%
Pig Crop
Sep-Nov 26.50 1.6% 4.21 2.8%
Dec-Feb 26.08 1.6% 4.01 -2.2%
Sows Farrowing
Mar-May 2.91 -0.5% 0.47 1.1%
Jun-Aug 2.92 0.2% 0.47 3.3%

Continued expansion in the industry was generally anticipated prior to the USDA report, so market adjustments should be minimal. It would appear that a certain amount of optimism remains in the industry. Breeding swine numbers are usually the first to level off and decrease when the industry is entering a down turn in the hog cycle, so optimism is evident as the national swine breeding herd was slightly higher. However, the breeding herd in Iowa has been on the decrease according to reports in the past several quarters. Iowa’s swine breeding herd is down 1.8 percent from last year. Although the industry is capable of significant inventory change from year to year, Iowa producers are showing caution by reducing the state’s sow numbers. As for market hog inventories, the number of hogs on feed in Iowa is up 1.4 percent from last year. Iowa continues to be thedestination for feeder pigs from other states and Canada. Canadian feeder pig imports are up 9 percent so far this year. Despite the higher cost of corn and feed the US and Iowa continue to have a production cost advantage significant enough to attract pigs for finishing.

So what can we expect for the future? Hog prices so far this year have been generous. Retailers, not wanting to be short handed as they approach the Easter holiday and summer grilling season, paid more for wholesale meats to guarantee their supply. As a result, the consumer should expect to pay more at the meat counter now and in the coming months. On the average, hogs have sold for almost 7 percent more this year than last. This is good news to hog producers as they are faced with feed costs 30 to 40 percent higher than the six year trend. Hog producers should expect prices to be fairly strong this summer following a trend similar to last year. Table 2 contains the ISU production and price forecasts in the next four quarters. Also listed is the futures price, adjusted by the Iowa basis, at the close of trading before the report was released. If a producer is concerned about the risk of hog prices falling, a position on the futures markets can help reduce that risk.

Table 2. Hog Production and Live Hog Price Forecast, March 30, 2007
ISU Forecast Futures
Production Price 3/30/2007
APR-JUN 07 2.0 $49-52 $51.84
JUL-SEP 07 2.0 52-55 53.63
OCT-DEC 07 1.5 46-49 48.74
JAN-MAR 08 1.5 46-49 47.18

As an additional note, the USDA also released their spring estimates on crop planting for the coming season. Acres planted to corn are forecast to be 15 percent more than last year. Although weather can change planting intentions and the outcome of the harvest, this news should give livestock feeders some hope of steady or lower corn prices.

Demand and Competition factors

Domestic demand is actually showing some signs of strengthening as of recent. Per capita consumption has been steady to slightly higher despite the recent increase in hog and pork prices. Consumer preference for pork is not the only factor in play. The price of both beef and poultry has been on the rise, giving support to the pork market. Poultry supplies have decreased recently as chicken producers opted to scale back production in the wake of increased feed costs. Figure 1 is a graph of the quarterly change in chick placements from the year previously and quarterly chicken production.

Figure 1. Chicken Production and Chick Placements

At no surprise US pork exports set another record high in 2006, up 12.4 percent from the year before. The largest foreign market, Japan, actually imported 3 percent less pork in 2006 than in 2005. Despite this reduction, they will remain our largest customer for some time to come. Most of the growth in foreign pork markets is coming from our North American neighbors, while exports to Russia and South Korea have increase 122 and 54 percent respectively.

Figure 2. Monthly Pork and Beef Exports

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