Despite extremely high feed prices, the US producer has managed to produce more pigs. The market inventory is a record high for June 1st.

June 1st USDA Hogs & Pigs Report

Breeding Herd

At 56,000 more sows than a year ago, there is no sign of liquidation. This number is an indication of the underlying confidence hog producers still have in the industry and the financial wherewithal to stand up to the high feed prices that we have been experiencing. Record profit returns for almost three years will do that.

Pig Crop

The pig crop was up half a million head in March-May quarter. This increase was done with higher pigs per litter (9.15 this year, 9.08 last year) and more sows farrowing (50,000+). You would expect with 1% more sows (60,000) in inventory than a year ago, you would get more sows farrowing. The 1% more breeding herd inventory is about 250,000 of the pig crop jump. Let’s face it – you are going to have more pigs when you have more sows.

Market Hog Inventory

The market inventory of 566 million is the largest ever on the June 1st inventory. With more sows farrowing, bigger litters and more small pigs from Canada (+7%), it doesn’t take a rocket scientist to know that there is going to be more hogs to kill. About a million extra hogs, year over year, works out to 40,000 extra a week.

Final Observations

Breeding herd inventory is up. Market hog inventory is at record levels. We hope pork demand is at record levels. We hope pork demand stays strong, for without it we could have extreme price pressures. The reality of supply and demand can be seen in the spot isowean market with some prices around $15.00 a pig. Fifteen dollars is a guaranteed loss of at least $15.00 per head for the producer. This price reflects the supply of pigs available, high feed prices and lack of confidence in the ability to make money on the finishing floor.

There is no doubt that there are more hogs. The wild card is demand. We would expect US domestic demand to remain relatively static. The export, if it continues to grow, can be the salvation of the hog price under the weight of this supply. Exports have been at near record levels. We expect continued growth to Korea, China, Russia & Japan lead by a combination of easier market access and demand by their consumers fueled by higher disposal incomes.

Corn

The USDA reported last Friday that 92,888 million acres have been planted in corn in the US this year - a whopping 14.561 million acres more than last year. The USDA current yield prediction is 150.3 bushels per acre which, if multiplying acres by yield, you get 12.9 billion bushels for the crop year (2007/2008). That’s a lot of corn and this expectation has dropped corn 90¢ a bushel in the last two weeks. As they say, ‘The surest cure for high prices is high prices. For hog producers a 90¢ a bushel drop takes about 4¢ lb liveweight out of the cost of production or about $10.00 a head.

We do not think that if the US crop continues its current level of excellent/good rating that the low price has been reached. We continue to believe that the extra corn acres planted throughout the world have not been taken into a proper equation. There are 2 million more acres in Canada in feed grains, 5 million more acres in Mexico. China has more, Russia, etc. Ethanol usage is up, but not at the levels to consume all of these extra corn acres. We would not be surprised to see US corn at $2.50 a bushel during the US harvest when there will be added pressure from the shortage of storage from a record US corn crop.