Market analysts expect to see expansion by U.S. pork producers as record-high hog prices and robust export markets put the industry on track for a second consecutive year of profits.
USDA releases its December Hogs & Pigs Report on Dec. 23. Analyst Dan Vaught looks for the breeding herd number to be 0.8 percent higher than for Dec. 1 2010.
Farrowing from December through February will probably rise about 0.6 percent from the year-earlier period, and farrowing intentions for March through May are expected to rise 0.8 percent, Vaught said in report he made on Dec. 15.
The projected increases reflect “the extreme height to which hog prices climbed during summer,” according to the analyst, who runs Vaught Futures Insights in Altus, Ark. “Despite greatly inflated feed costs, I think the promise of strong returns prompted farmers to hold back a few more gilts for breeding than they had previously stated they would.
“It’s rather clear the industry is involved in a moderate expansionary trend,” Vaught said, pointing out high hog prices that persisted through this fall and a slide in the corn prices.
The breeding herd and farrowing figures are signals of industry expansion and future pork supplies. USDA will release its Dec. 1 inventory report on Friday, Dec. 23 at noon. In December 2010, the breeding herd totaled 5.78 million head.
Hog prices climbed this year in part because China, South Korea and other countries sharply increased purchases of U.S. pork. Through mid-December, lean-hog futures traded on CME Group in Chicago averaged about 90.7 cents a pound carcassweight, up 20 percent from 2010's average of 75.6 cents.
In August, lean hog futures topped $1.06 per pound carcassweight, an all-time high for the CME contract.
“Good exports have helped to support hog prices all year,” Doane Advisory Services analyst Rich Pottorf saidl. There is “modest” expansion across the pork industry, Pottorff said. He estimated the breeding herd as of Dec. 1 will have increased 0.6 percent from a year earlier.
“Cash hog prices have been pretty good and up until about a month ago… (and) futures prices suggested even better prices were ahead,” Pottorff said.
Producers in Iowa turned an average profit of about $6.40 for every market hog sold for the year through November, according to estimates from Iowa State University. Last year, per-head profit averaged almost $13.
The U.S. hog herd is expected to have totaled about 65.95 million head as of Dec. 1, up 1.6 percent from a year earlier, Vaught estimates. Pottorff predicts an increase of 1.8 percent in the total herd. While the overall herd has grown this year, it remains below the all-time high of 68.2 million head in September 2008.
Europe’s debt crisis has clouded the 2012 outlook for the pork industry and other U.S. agricultural producers, with commodity markets dropping sharply. Hog futures are down about 22 percent from the all-time highs in August.
In trading Dec. 16, lean hog futures for February delivery fell 2.275 cents to 83.15 cents a pound, the contract’s lowest settlement since late May. Hogs are expected to command higher prices next spring and summer, with June futures ending at 92.55 cents and July futures at 91.775 cents.
Among other potential stumbling blocks, U.S. pork exports could taper off from this year’s record pace and corn prices could spike higher again, Pottorff said.
“Risks for 2012 include the situation in Europe, which could trigger a global recession,” he said. “Exports could easily decline even as pork supplies increase next year. That is especially true if we get the aforementioned recession. Corn prices could increase significantly, especially if spring planting is delayed or early-season weather is poor.”
Through the first 10 months of 2011, U.S. pork exports totaled 4.19 billion pounds, up 23 percent from the same period in 2010 and on pace to surpass the 4.65 billion pounds shipped in 2008, according to USDA data.