By most accounts it is clear that U.S. pork producers are beginning to trim production. Ironically however, the success of record animal productivity achieved by the U.S. pork industry may interfere with producers' efforts to reduce the pork supply.
With the inventory of breeding hogs down 0.3 percent year-over-year and farrowing intentions for the current quarter down 2.7 percent, indications point to a 2 percent reduction in pork production for 2013, according to Rich Pottorff, chief economist, Doane Advisory Services.
However, the anticipated reduction in farrowing will be partially offset by gains in productivity. The number of pigs saved per litter continues to increase, with the average in the most recent quarter at 10.13, a new record high.
In fact, over the last seven quarters, the number of pigs saved per litter has increased at an average rate of 1.6 percent per year. The gains in productivity may mean the actual reduction in pork is smaller than suggested by the lower farrowing intentions.
If productivity gains continue at the same pace, the pig crops over the next two quarters could still be down compared to year-earlier levels, but the declines might be closer to 1 percent than the 2 percent implied by the lower farrowing intentions, according to Pottorff.
The inventory of breeding hogs came in at 5.788 million head, down 0.3 percent from a year earlier. While the dip in the breeding herd is small, it may be just the beginning of a continued reduction in pork supplies in response to the high feed costs and poor hog production profits.
Production losses accelerate
During the June-August quarter, cash hog prices dropped from a high of more than $101 per hundredweight on June 22 to a low of $71 per hundredweight at the end of the quarter. During the quarter, cash corn prices reached a record high of nearly $8.30 per bushel. The average corn price for the July through August period was $8 per bushel and the hog breakeven price with $8 corn is about $93 per hundredweight. The average hog price for July-August came in at $87, suggesting losses of about $15 per head. Average cash prices for corn and hogs during September suggest that hog production losses have gotten much worse.
Meanwhile, the market is signaling hog producers that the profit situation will get a lot better if they can hold on through the winter. Hog futures prices for next spring and summer suggest good profits will return. The June hog contract has been holding between $97 and $100 since the drought got cranked up this summer, and corn futures prices have declined somewhat.
With that carrot, producers may not reduce farrowing as much as they said they would at the beginning of September, hoping to have more hogs ready for market just as profits turn positive.