As feed prices continue high and the 2012 crop season has barely begun, U.S. pork producers have signaled that they are not quick to expand their herds, according to USDA’s March Hogs and Pigs Report. While the breeding herd on March 1 was reported to be up 1 percent from 2011’s level, a bit higher than the pre-report estimates for a 0.3 percent increase, producers report farrowing intentions at or below year-ago levels. Trade expectations were for 3 percent increases in farrowing plans.
But intentions can still change. “There is some question in the March-May and the June-August farrowing intentions ,” says Karl Skold, president of Westside Economics, Omaha, Neb. “I think in the end, those (farrowing) numbers will be unchanged, and with litter productivity, we’ll see 1.5 percent to 2 percent more hogs.”
Certainly producers have shown time and again that they don’t need more sows to send more hogs to market. The December-February pig crop came in at 28.7 million head, that’s up 3 percent from the same period a year ago. Producers averaged a record high 9.97 pigs per litter, which is 1.7 percent higher than last year. Operations raising more than 5,000 pigs annually averaged 10 pigs per litter.
The mild winter helped contribute to those higher pig numbers as well as the continuation of very heavy market weights. Both have been weighing on the market as John Nalivka, president of Sterling Marketing, Vale, Ore. , points to packer margins as a yellow flag. “Packers have been losing $10 to $15 per head in 2012; last year they were making that per head in profit. Packers will only take those losses for so long.”
On the producer side, while farrow-to-finish margins remain positive to the tune of about $11 per hog, a year ago those profits were about double that amount.
“We have some risks coming in here for the critical summer months,” says Len Steiner, president of Steiner Consulting Group, Manchester, N.H. He points nervously to the export market, reminding producers that even though the trend has been strong in recent years, sales are not a sure thing.
“The export market will be even more important in 2012 than in 2011,” he says. “Anytime you count on a market for 20 percent of your annual production, that’s significant. Any significant glitch could be a problem.” He adds that anytime a major buyer, like China, comes into the market, prices will spike.
But export buyers are unpredictable and are facing the same kind of high prices and economic uncertainties that domestic consumers are facing.
All three analysts agree that pork demand, as well as chicken demand, so far this year has been more sluggish than they expected, especially given the high price of beef. “We are comparing ourselves to a pretty high bar—last year was a very good year,” Skold says. The major U.S. pork buyers of Japan, China and South Korea all came in and made big purchases.
“Domestically, we have a few headwinds this year, with $4 gas and an improving but still sluggish economy, nervous consumers are looking to cut costs,” he adds
Until those consumers see lower pork prices passed on to them in the meat case,, there’s little change on the horizon. “I don’t have a very bright outlook for packer margins and cutout values,” Nalivka says.
“A significant increase in exports would help the pork market greatly,” Steiner adds, “but I don’t expect that to happen.”
To review a summary of the March pig crop report as well as full access to the USDA report, click here.