USDA’s December Hogs and Pigs Report revealed few near-term surprises to the trade. All hogs and pigs, breeding herd and market hog inventories were all up 1 percent from last year’s levels. Actual September/November farrowings were up 1 percent from 1999 levels, and the December/February farrowing intentions are expected to rise 4 percent from a year ago.
March/May farrowing intentions, projected to be only 1 percent above 2000 levels, extended the good news, but then again there’s plenty of time for the reality of those farrowings to change. If the intentions hold, they would produce a fourth-quarter 2001 slaughter that exceeds third-quarter levels by only 4 percent. From 1996 to 2000, that increase has typically averaged 8 percent, according to Ron Plain and Glenn Grimes, University of Missouri agricultural economists. If the second-quarter pig crop increases only 2 percent as indicated by the farrowing intentions, then the industry’s current slaughter capacity should be adequate.
However, it’s worth digging deeper into the report. While the expansion has been somewhat modest it also has been spotty. The Eastern Corn Belt expanded its breeding herd by 4 percent, led by Illinois with a 7 percent increase and Indiana at 5 percent. Of course, this region had the most room to grow following the 1998/99 crisis when producers cut herds by 25 percent.
The Southern Plains saw some growth as the Kansas breeding herd increased by 7 percent, Oklahoma by 10 percent and Texas by 6 percent. Operations in those states are primarily large systems.
Western Corn Belt breeding herd numbers fell 1 percent, with Missouri down 7 percent and Iowa down 3 percent. Personal conversations suggest a continued growing trend of contract production in those states.
Of significance are the declines seen in the Western states, where very large production systems are the norm. Colorado’s breeding herd is down 10 percent, which is little surprise considering National Farms closed its doors. Arizona’s breeding herd fell by 90 percent, and California is down 20 percent. “Hog production costs are higher in the west and southwest vs. the Midwest,” notes Hurt, “and large hog production units have been forced to cut back because of financial losses as well as environmental concerns.”
Perhaps some of the warnings following USDA’s September pig crop report, where early expansion signs surfaced, tempered producers’ enthusiasm to increase spring and summer farrowings. “It is unusual to see the rate of farrowing increases tail-off this early in an expansion,” says Hurt. “The fear of 1998/99 is still vivid in producers’ minds.”
This year’s pork supplies are expected to exceed 2000 by 3 percent, equaling 19.5 billion pounds. First-quarter supplies should about equal last year’s levels; second quarter should be up 3 percent; with the bulk of the increase in the last two quarters– up 6 percent and 4 percent respectively. These levels include projected farrowings as well as increased weaning rates and market weights.
Plain, Grimes and Hurt all expect 2001 live hog prices to average around $38 vs. $44.70 for last year. Grimes’ and Plain’s Price Projections for 2001 are: first quarter, $37 to $40; second quarter, $43 to $46; third quarter, $36 to $39; fourth quarter, $34 to $37.
If the current information is accurate, there doesn’t appear to be slaughter capacity issues for 2001, with an estimated 100.4 million hogs. However, 2002 presents a concern. In their early predictions, Grimes and Plain estimate103 million hogs to be slaughtered. That would challenge capacity, and severe price discounts, like those in 1998 could occur in the fourth quarter of 2002.
Production costs, led by energy costs and possibly feed grains, could increase $1.50 to $2 per hundredweight, says Hurt. That could put pork profits around $2 per live hundredweight in the spring, improving somewhat in the second quarter before turning to losses in the second half of the year. “The (pork) industry now appears to be a low-margin, intensively managed industry,” says Hurt. While not all of the numbers are in, it appears that from 1998 through 2001, the industry has averaged about a 50-cents-per-hundredweight loss.