This looks to be a third consecutive year of profits for pork producers, but it will have longer-term effects. 

“Accumulated earnings are going to be large enough to encourage further expansion,” says Chris Hurt, a Purdue University Extension marketing specialist. "This could make 2007 and 2008 more financially vulnerable.”

For now, he suggests that the industry celebrate the three-year winning streak. It’s especially sweet following the 1998-to-2003 period when the industry could hardly find a positive tilt.

"The financial tide finally turned to black in spring 2004, and has been on a winning streak ever since," Hurt notes. "Profits in 2004 averaged about $9 per live hundredweight for farrow-to-finish production. That number approached $10 in 2005 and the forecast for 2006 is around $6."

Assisting the on-going profitability, is the fact that the U.S.hog inventory remains stable. As reported in USDA’s December Hogs and Pigs Report, total inventory numbers were up only 0.4 percent with the breeding herd up 0.7 percent and the market inventory up only 0.3 percent.

It’s worth noting that the current 0.7 percent breeding herd increase is extremely small by historical standards, but it’s the largest annual increase since 2000. The 2005 expansion was a 42,000-head increase, notes Hurt.

Most of the additional sows have surfaced in the eastern Corn Belt, it increased by 35,000 head. States leading those gains are Indiana at 20,000; Illinois, 10,000; Ohio, 10,000; and Wisconsin, 5,000. Only Michigan had a reduction of 10,000. Hurt says it could be a signal that pork production is returning to the eastern Corn Belt.

Pork production is expected to increase by about 2 percent in 2006. Hog slaughter is expected to reach a record high of 105.4 million head. "Slaughter weights also are expected to be up by about 0.3 percent in 2006,” notes Hurt. Of course the heaviest slaughter runs will come in the second half of 2006, which will mean that hog prices will come under the most pressure at that time as well.

He expects live-hog prices for the year to range from $50 to $40 per hundredweight. "With production costs anticipated to be slightly less than $40, producers can look forward to about $6 of profit per live hundredweight for the year."