More sows need to be sold and the market herd reduced further, says Chris Hurt, Purdue University agricultural economist.
The industry has been slow to adjust hog numbers significantly lower, likely due to the concentrated industry structure and the newness of capital investments made over the last 10 years, he points out.
"In past hog cycles, it has taken about 1.5 years from a period of loss until the industry reduced production and returned to profits," says Hurt. "If the timing is similar this time, it would mean we are just entering a period of higher prices, with the highest prices and profits not expected until 2004."
He says the hog market has failed one price test after another this year.
USDA's March Hogs and Pigs Report renewed hope for higher future-contract prices, yet cash prices remained stuck at lower levels. The market must now rely on the traditional spring price rally to salvage a return to a breakeven– a test that the market needs to pass, says Hurt.
USDA's March inventory report revealed that producers across the country have reduced breeding herds by 4.5 percent. Given the large financial losses during the past year, even greater reductions can be expected through 2003.
Spring and summer farrowing intentions are down at least 3 percent, which should reduce market hog numbers through next winter. "The direction is correct, but there remains a question of whether the reductions are large enough to push hog prices back into profitable ranges," says Hurt.
The market herd was down only 1.6 percent in the March report. However, there was some hopeful news in the weight categories, as it suggests that slaughter numbers will be dropping. Pigs headed to market in April through August were down from 2 percent to 2.5 percent compared to 2002.
"Producers have been operating at a loss dating back to March 2002," says Hurt. "Those losses were the most severe late in 2002, averaging an estimated $21 per head. Losses were more moderate in first-quarter 2003, but still held around $9 per head. Low hog prices have given packers their best margins in four years during this period."
Given the larger-than-expected hog supplies, 2003 pork production may be down only 1 percent. Live-hog prices are expected to average $37 to $38 per hundredweight for the year, with the highest prices still expected this spring, when daily highs could reach the low-to-mid $40s per hundredweight.
Late summer prices are expected to be in the high $30s per hundredweight. Look for prices in the mid-$30s late in the year, with prices moving into the high $30s in first-quarter 2004.
Source: Purdue University