Market Preview: US Herd Continues Remarkably Stable Run

US - Weekly US Market Preview w/e 8th December, provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.
calendar icon 10 December 2007
clock icon 4 minute read

It is not terribly difficult to describe what's currently happening in the U.S.-Canadian pork industry.

  • Steady growth of the U.S. sow herd combined with effective circovirus vaccines and record imports of slaughter hogs from Canada have combined to push slaughter levels to record highs.
  • The live hog market has handled these large numbers remarkably well. The percentage decline in hog prices has been roughly two times the percentage increase in supply. I would expect that relationship to be 3:1 so that means that hog demand has been good.
  • Hog demand has been positively influenced by a resurgence of both domestic demand and exports as the year has gone on. Packer capacity actually grew during the year despite the loss of the Bryan Foods plant in Mississippi. Given the high level of slaughter capacity utilization this fall, I can't make much of an argument that packers have chased pigs this fall, as beef packers have done all year due to the JBS-Swift merger and JBS's interest in double-shifting the Greeley, CO plant. I am comfortable though, in saying that packer capacity has not been a negative factor this fall. And with nearly 2.4 million head last week, that is saying something.
What becomes much more challenging is trying to figure out the probable direction that the U.S. sow herd might take. October market hog sales marked the first significant losses in nearly four years for hogs sold strictly on cash markets. But that may not account for many hogs, as everything I can gather suggests we may have had more hogs hedged this fall than ever before. And profits on those futures positions (or the money being paid by packers on contracts tied to October and December futures prices last summer) mean those October cash losses don't apply. Ditto for November and December deliveries.

And just how will the sow herd change? Figure 1 shows the amazingly stable nature of this herd today. Compare the past few years to the way the herd used to jump around. The U.S. herd has had a change of 2% or less for 10 straight quarters. My guess is that will continue for at least another year due to projects already underway. The real question is whether losses this fall and, as I expect, in the first and fourth quarters of 2008 will be enough to cause the growth to stop. I do not really think they will.

The biggest reason for my doubt is what is likely to happen in Canada. My thoughts on that have been well documented in recent issues of North American Market Preview. I think it is likely that U.S. producers will stay the course and see what happens up north.

So far, not much has happened. Figure 2 shows weekly Canadian sow slaughter and weekly imports of cull breeding animals (includes boars) from Canada. While there has been a slight upturn of imports in recent weeks, it is not at all marked -- which is what I expect to happen at some point if Canadian producers react as I expect to the hefty losses they are facing. There is little, if any, extra capacity for slaughter sows and boars in Canada. They have to come south for slaughter if they get culled.

I expect the Dec. 1 U.S. breeding herd inventory to be 1% or so larger than one year ago. Pretty safe prediction there, given the past 10 quarters.

Canada is a different story. Their Jan. 1 inventory will not be published until mid- to late February and I think it will show and acceleration in the pace of reduction -- 2 to 3% lower would not be a surprise.

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