Hog report reflects producers’ dramatic response

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Even though USDA’s September pig crop report shows most production categories equal to year-ago levels or down just slightly, market analysts are calling the results dramatic. That’s because in June, pork producers were planning to expand production. Record corn acreage was planted and a big corn crop was expected. Now, following drought-reduced feed supplies producers have made a U-turn and are cutting breeding herd numbers as well as farrowing intentions.

Grabbing significant attention in the September Hogs and Pigs Report released Friday, were the September/November farrowing intentions, down nearly 3 percent from last year’s levels.  

As for the breeding herd, “it’s dramatic going from a breeding herd that was up 1.1 percent (from 2011 levels) in June, to down 0.3 percent now,” says Altin Kalo, chief economist, Steiner Consulting Group, Manchester, N.H. That’s especially true because due to the operational size, as well as financial and facility commitments of today’s pork producers, “they don’t turn on a dime.”

However, he doesn’t think producers are done downsizing yet.  Kalos points to USDA’s grain report, also released on Friday, showing even smaller corn and soybean supplies than previously projected as giving those markets renewed upward potential.

But beyond price, is the issue of actual feed availability. “It’s a very real issue whether we’re going to have feed supplies available,” says Ron Plain, University of Missouri agricultural economist. The question is if the ethanol, export or livestock sectors don’t reduce corn usage, how high will prices need to get? “Will $7.50-bushel corn look like a bargain next summer,” Plain asks.

Kalo looks for another corn price spike into 2013, if the market is going to entice growers to plant the 97+ million acres needed for next year.  “The scare of even higher corn prices into 2013 will cause pork producers to continue to cut farrowing intentions,” he believes.  “December will see even bigger declines for first quarter farrowings.” As of Sept. 1, the December/February farrowing intentions were reported to be down 1 percent from the 2011/2012 levels.

While sow slaughter ran high for several weeks this summer, significantly more gilts also moved to market versus making their way into the breeding herd—another trend that the analysts expect to continue.

But even with producer’s marketing gilts and cutting the breeding herd, actual pork supplies will drop less. That’s because of producers continuous productivity gains—having set another record at 10.13 pigs per litter—it takes deeper cuts in the breeding herd to reduce market hog numbers.  “I think we’ll see continued gains in pigs per litter as producers get rid of their least productive sows, and apply more attentive management on the pigs they do have,” says Dan Vaught, president Vaught Futures Insight, Altus, Ariz.

The unfortunate reality is that producers simply cannot cut production enough to bring profitability back any time soon. “We’d have to see a 2 percent to 3 percent cut in the breeding herd,” Vaught says, before profitability would return late next year.

The September Hogs and Pigs Report numbers are available here

 

 



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