Glenn Grimes, University of Missouri agricultural economist, delivered his unofficial economic state-of the-pork-industry address last week to Pork Academy attendees.
Grimes pointed out that exports set a record for the 11th consecutive year in 2001 and accounted for $14.17 of value per hog slaughtered in the United States. Grimes also said that U.S. per capita consumption of pork and annual production growth have remained fairly constant, while other issues have changed greatly over time.
Demand is becoming more inelastic, he noted. That means any change in hog slaughter will result in a greater change in live-hog prices than in the past. The old rule was for every 1 percent change in supply there was a 2 percent change in live-hog price, but recently that ratio has been more like 1:3.3, which Grimes attributes to a less flexibility in the packing industry.
U.S. producers have shown good discipline in terms of growth plans. The sow herd appears stable, despite some profitable years. However, seasonality is still an issue, with production putting 20 percent more hogs on the market in November than in June. There are concerns about slaughter capacity.
Grimes thinks continued seasonality of production is because: 1) more of the sow herd is located in the south than in the past, 2) breeding females have less body fat than in the past and 3) the breeding herd is being worked harder than before.
Grimes then made his forecast for prices for the rest of this year as well as into the into the future. Here are those forecasts.
2002 Live-hog prices
1st quarter – $37.23
2nd quarter – $31-$34
3rd quarter – $32-$35
4th quarter – $26-$29
Year average – $31-$33
(Slaughter in parentheses/million head)
2002: $31-$33 (100.3)
2003: $33-$36 (100.3)
2004: $38-$41 (99.0)
2005: $41-$44 (98.0)