Editor's note: The following article was published in the September issue of PORK Network, available online in mid-September.
The odds are high that this year’s hog slaughter will break the 2008 record of 116.452 million head. We only need an increase of 0.9% from last year to set the record.
Daily hog slaughter was higher this summer than any preceding one. Three of the four largest slaughter totals for a week during August were in 2016. Hog slaughter capacity was tested late last year. The largest slaughter week ever, and four of the top 10 slaughter weeks were in November and December of 2015. If as expected, hog slaughter is higher this fall than last, packers may be severely stressed to process hogs on a timely basis. If they can’t, hog prices will get extremely low.
Additional capacity will be coming from new large plants in Sioux City, Iowa and Coldwater, Mich., which will go on line in the fall of 2017, plus the recently approved Prestage Foods plant in Wright County, Iowa in 2018.
But, those plants will open far too late to help process this year’s market hogs. Added slaughter capacity later this year should come from two older slaughter plants in Windom, Minn. and Pleasant Hope, Mo. that are being remodeled.
The best news of the summer for livestock producers was the outstanding growing season. This year’s production is expected to exceed 15 billion bu. of corn and more than 4 billion bu. of soybeans – a record for both crops. Record production will mean the lowest feed costs since 2007. Harvest time corn prices are expected to drop below $3 per bushel in much of the Midwest, a level not seen since November 2006. The futures market implies that corn prices will slowly climb back to $4 per bushel over the next two years. These prices should keep cost of production for market hogs under $65/cwt of carcass during the coming year.
Lower feed costs are a big plus for livestock and poultry producers. It shouldn’t be surprising that corn prices at half what they were three years ago are causing an increase in meat production. Production of each of the four major meats is up this year and will be up again in 2017. Pork production is expected to be up 1.7% this year and up another 2.4% next year. Total red meat and poultry production is expected to be up 3.1% this year and up another 2.8% in 2017. The U.S. population only increases 0.9% per year, so these production increases will push up per capita supplies and drive meat prices lower. Over time, meat prices nearly always move to the cost of production.
Pork exports are increasing slowly. During the first half of 2016 pork exports were up 1.8%. Exports are expected to be up 9.5% in the second half and to increase by another 1.6% in 2017. Most of the increase this year is due to strong demand coming from China. Hog numbers there are down and their pork prices have been at record levels. During the first half of 2016, U.S. pork exports were up by 44 million lbs. compared to January-June 2015. Shipments to China were up by 187 million lbs. The European Union has become a strong competitor in supplying pork to East Asia.
The Canadian hog inventory is larger for the fourth consecutive year. Canada’s July 1 swine inventory was up 1.9% with their breeding herd up 0.7% and the market hog number up 2.0%. These numbers are in line with U.S. June inventory changes. Their July survey found more than 13 million head. The Canadian herd is one-fifth the size of the U.S. swine herd. More hogs in Canada are likely to mean more imports of pork and hogs into the U.S. Three-fourths of U.S. pork imports come from Canada. Live hog imports are expected to total 6 million head this year, with 75% being weaner/feeder pigs.