Don’t Throw Caution to the Wind

After two years of steady decline, the U.S. sow herd increased from March to June. The June breeding herd was still 7.1 percent lower than the last cycle peak, which occurred in December 2007, but it was 0.5 percent larger than in the previous quarter. On average, the breeding herd is typically a bit smaller on June 1 than on March 1. This year it increased by 28,000 head. 

USDA’s June pig crop report said March/May farrowings were down 4.7 percent and forecasted summer farrowings to be down 2.3 percent, with fall 2010 farrowings down 0.5 percent compared to 12 months earlier. Pork producers lost $6 billion in the last market downturn. It would be good for balance sheets if rebuilding the sow herd occurs slowly. 

Exports Remain Strong Even at Higher Prices

The trend in pork trade continues to be very positive. From 2000 to 2009, U.S. pork production increased by 4.07 billion pounds, and pork exports increased by 2.84 billion pounds, which means exports claimed 70 percent of the increased production. Through May of this year, U.S. pork exports were up 5 percent compared to 2009, despite pork production being down 4 percent and wholesale pork prices up 34 percent. Specific to May, exports equaled 22.4 percent of U.S. production, the third highest month ever. 

On the other hand, pork imports during the first five months of 2010 were down 2 percent. Imports have equaled less than 5 percent of U.S. production for every month since June 2007. 

Rebalancing Hog Price Spreads

For several years, spot-market hog prices in the western Corn Belt have typically been higher than in the eastern Corn Belt. In 2008, carcass prices in the west averaged more than $2 per hundredweight higher than in the east. Although quite variable, the gap in negotiated hog prices between east and west is steadily narrowing. 

So, what’s going on? There are more hog packing plants in the west than the east. But, with the recent closure of the John Morrell slaughter plant in Sioux City, Iowa, the east/west balance between hog supply and packer demand is likely closer to equilibrium.