Pork producers received a much needed and welcomed repreive with the release of the USDA's September Hogs and Pigs Report. Prior to the release on Sept. 27, market analysts were nervously silent about their expectations. It appears now, pork producers are more savvy than expected and heeded the numerous warnings about potentially devestating fourth-quarter prices.
Although less severe than anticipated, producers will still face a losses through this fall and early winter.
"A return to break-even prices can be anticipated by early spring, with some positive returns by late spring and summer," says Chris Hurt, Purdue University agricultural economist. "If additional sow liquidation occurs this fall and winter, hog prices should be strong during the last half of 2003 and into 2004.
"For now, producers should calculate their variable or 'out-of-pocket-costs' and continue to produce hogs this fall as long as they anticipate they can recover those variable costs. In general, most will continue to keep animals in inventory, but they should cull the least productive animals, keep market weights moderate, and continue to evaluate their long-term strategies in this changing industry," he advises.
USDA's September Quarterly Hogs and Pigs report, showed the breeding herd to be down 1.7 percent as of Sept. 1, following a slightly higher inventory in June.
It appear now that the abundant hog slaughter seen in July, August and part of September was actually producers moving hogs to market at an excelerated pace. The prospect of a flood of hogs this fall, a possible return to 1998/1999 price levels and rising feed-grain costs sent more hogs, including sows and gilts to market.
"That panic selling appears to have a silver lining as the breeding herd has shifted to liquidation mode and market hog numbers will begin to decline later this fall," says Hurt. "As a result, fears of insufficient slaughter capacity and horribly depressed prices have eased."
The breeding-herd decline began in July with sow slaughter exceeding 2001 levels by 20 percent. August followed, up 17 percent, and September was up 12 percent. During those three months 120,000 more sows were slaughtered as compared to the same period last year. Looking further back, sow slaughter during April, May and June was also 5 percent larger than for that period in 2001, representing an additional 40,000 sows.
Fewer sows translated to lower summer farrowings than anticipated, notes Hurt. In USDA's June report, producers said they would farrow 2 percent more sows in the June/August period than in 2001, but farrowings actually dropped by 1.5 percent.
As a result, the market-hog inventory also was much smaller than anticipated. Hogs in the 120-to-179-pound weight group in September's report represent most of October's slaughter. That category was only 3 percent than a year ago. But slaughter should begin to drop below year-earlier levels in November, as the 60-to-119-pound inventory was down modestly. The number of pigs heading for market in December to February was down 1 percent. Marketing weights also have declined and are expected to help moderate pork supplies during the next 12 months.
The September report shows that producers plan to continue to reduce farrowings and thus market hog supplies into 2003. Fall farrowing intentions were down 2.5 percent and winter farrowing intentions were down 1 percent from year ago levels.
In the near term, pork production through first quarter 2003 will be nearly unchanged from production in the previous year. However, by spring and summer, supplies are expected to drop by 2 percent to 3 percent. For all of 2003, pork production should be down about 2 percent.
"Fall prices for 51/52-percent lean hogs are now expected to average $30 to $34," says Hurt. "That's a substantial improvement over the mid-to-high $20s discussed before the report. Prices should improve to the high $30s in the winter and move higher into spring when they could average in the low $40s. Summer 2003 prices may reach the low-to-mid-$40s."
Production costs are currently estimated around $39 to $41 per hundredweight live, and have declined somewhat with moderation in corn and soybean meal prices since USDA's mid-September grain update. Third-quarter losses are estimated at $20 per head, but are expected to be somewhat worse for fourth quarter– at $22 per head.
"By winter, losses should decline to about $5 per head," says Hurt. "There is potential for a return to break-even prices by the spring and some profits by summer."