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Grimes & Plain on the Hogs and Pigs Report

by 5m Editor
1 October 2007, at 11:09pm

The September 1 Hogs and Pigs Report came in above the average of the trade expectations.

The total herd and market herd came in close to our forecast but larger than our breeding herd estimate. However, the difference between our breeding herd estimate and USDA's estimate is only 0.6% and neither set of data is accurate within this range. The USDA inventory survey showed the total herd up 2.8%, the breeding herd up 1.1%, and the market herd up 2.9% from September 2006 (Table 1).

Fourth quarter slaughter is expected to be near 2.92 million - up 4.7% from a year ago. A portion of the increase in fourth quarter slaughter is due to one more weekday for slaughter in the fourth quarter of this year than last year. October commercial hog slaughter is expected to be a record monthly high at over 10 million head. If this does occur, which seems highly probable, it will be the first month ever in the U.S. with a slaughter of 10 million hogs.

With this level of slaughter, we expect the price of 51-52% lean hogs, U.S. basis, to be in the upper $30s to low $40s live weight in the last quarter of 2007.

USDA said the inventory of market hogs weighing less than 60 lbs. was up 2.9% on September 1. However, they also said that the June-August pig crop was 3.5% larger than a year ago. Imports of feeder pigs were up by 72,000 head during June-August compared to the same period last year, implying the inventory of young pigs should be up about 3.8%. We are leaning towards the pig crop estimate as a better predictor of hog slaughter during the first quarter of 2008. We are predicting January-March slaughter will be up 3.6% and live hog prices will average in the low $40s for 51-52% lean hogs.

Farrowing intentions for September-November lead us to believe second quarter 2008 slaughter will be up about 1.9% from 2007. Included in this estimate is 1% productivity growth and a continuing increase in hog imports.

The average number of pigs per litter in the U.S. in the June-August quarter was 9.19 - the highest of record. With the good results occurring with circovirus vaccine, productivity growth in 2008 is likely to be 2% or more.

January-August pork production in the U.S. was up 2.6% with U.S. consumption of pork per capita up about 2% compared to a year ago. Retail pork prices for this 8-month period were up 2.3% and live hog prices were up 5.7%. The only way to get higher prices with both higher production and higher consumption is to have growth in demand.

Our demand index shows U.S. consumer demand for January-August 2007 was up 1.9% from a year earlier. Live hog demand for this same period was up 3.3%. All of the increase in live hog demand this year was from the domestic market as export demand has been slightly lower. Most of the increase in retail prices was bid through to the price of live hogs. Demand for live hogs was also assisted this year by higher byproduct prices.

Pork exports in July were above a year earlier for the first time since January. The increase was a modest 2.1%. We hope for some additional increase through the remainder of the year.

Pork exports during January-July were down 2.8% compared to this period last year. Our exports to Japan were up 7.8%, to Canada up 2.9%, to Mexico down 30.5%, to Russia down 17.8%, to South Korea down 2%, to Hong Kong and mainland China up 78.7%, to Taiwan down 37.7%, to the Caribbean down 31.1%, and up 1% to other countries. The reason for the big decrease in pork exports to Mexico is not known. Possible explanations are higher prices for corn are causing a downsizing of the Mexican hog herd; a slowdown in the Mexican economy; and possibly bad export data.

Pork imports for January-July were up 0.1% from 12 months earlier. During the first 7 months of the year, our net pork export as a percent of production declined from 9.8% in 2006 to 9.2% in 2007.

Live hog imports from Canada continue to increase. For January-July, total live hog imports from Canada were up 11.1%, feeder pig imports were up 7.9%, and slaughter hog imports were up 18.7%. We expect additional increase in live hog imports from Canada; but with Canada downsizing its hog herd, the growth will not continue forever.

The potential for a 13.3 billion bushel corn crop will moderate feed price increases through the spring of 2008. However, high corn prices are likely because of the demand that is expected for corn in the 2008/09 marketing year and the need to keep corn prices high enough to avoid losing too many acres to soybeans.

Hog producers are expected to see the most red ink in the fourth quarter of 2007 they have seen in 4 years. Losses are expected to continue through the first quarter of 2008 for the average cost producer.

Our slaughter and price estimates by quarter are in Table 4. We assumed stable demand for hogs and pork for the next year.

Table 1. Hog Inventories September 1, U.S.
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 2007 as % of 2006
 Market 102.9
 Kept for breeding 101.1
 All hogs and pigs 102.8
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Table 2. Market Hogs on Farms September 1, U.S.
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 Weight Category 2007 as % of 2006
 Under 60 pounds 102.9
 60 - 119 pounds 102.7
 120 - 179 pounds 102.8
 180 pounds and over 103.4
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Table 3. Sows Farrowing and Intentions, U.S.
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 2007 as % of 2006
 December-February 101.3
 March-May 102.5
 June-August 100.5
 September-November 101.3
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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 26.208 $39.23 $42.63 $58.37
 2 24.839 45.81 48.45 65.96
 3 25.810 46.92 51.83 69.13
 4 27.880 41.56 46.13 62.04
 Year 104.737 43.38 47.26 63.86

2007 1 26.686 $41.49 $46.04 $62.69
 2 25.524 48.14 52.55 71.39 
 3 (part. est. 26.566 45.40 50.42 69.28
 4 (projected) 29.200 35 - 39 39 - 43 54 - 58
 Year 107.976 43 - 44 47 - 48 64 - 66

2008 1 (projected) 27.650 $35 - 39 $39 - 43 $54 - 58
 2 (projected) 26.000 40 - 45 45 - 49 61 - 66
 3 (projected) 27.200 39 - 43 43 - 47 58 - 63

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5m Editor