On the heels of the announcement of a BSE-positive cow in the United States– and the prospect of facing large beef supplies– U.S. pork producers got more bad news in USDA's December Hogs and Pigs Report. Nearly all of the production and herd numbers were higher than expected.

Producers are going to have to further reduce the breeding herd to bring the pork industry back to profitability, says Chris Hurt, Purdue University Extension marketing specialist.

The fact that the spring farrowing intentions show reductions (by 1 percent), suggest the industry is moving in that direction, says Hurt. But the industry has been slow and tight-fisted in terms of making production declines.

The December pig-crop report indicated that the U.S. breeding herd is down 1 percent from 2002 levels, but the market-hog supply is up 2 percent. Producers say they will farrow 2 percent more sows this winter compared to last year, but cut back in the spring.

If so, 2004 production about equal that of 2003, which set a record at 19.8 billion pounds of pork. "With human population growth, this means that production per capita will drop about 1 percent, which could a modest improvement in prices."

However, some market analysts believe final 2004 pork production could exceed 2003 levels by 2 percent.

The U.S. BSE issue also will impact the pork industry in 2004. "Domestically, expect to see retail beef prices drop 10 percent to 12 percent," says Hurt. That could pressure pork demand somewhat. However, these 'cross effects' are relatively
small today. He expects only a 1 percent reduction in pork demand due to lower beef prices.

Live-hog prices are expected to increase about $2 per hundredweight in 2004, averaging around $41. Late-winter prices are expected to move to $40, and on the mid-$40s by late spring. Summer prices are expected to be in the low-to-mid $40s, then drop to the high $30s in the last quarter of the year.

High feed cost are only adding to the profitability crunch. "Producers must watch feed ingredient costs. The required soybean rationing has not yet occurred, and tight world stocks of corn could still mean higher prices," he notes.

"Using current futures prices, higher corn prices are expected to increase pork production costs by 20 cents per live hundredweight compared with 2003. Higher soybean meal prices are expected to increase costs an additional $1.20 per live hundredweight," Hurt notes.

Overall production costs may rise by $1.50 with hog prices rising about $2 for the year. This would mean little improvement in producers' overall profitability. "Estimates suggest that pork producers lost an average of $1 per live hundredweight in 2003. Those losses could be reduced to about 50 cents in 2004," he concluded.

Purdue University