Once again, U.S. pork producers have shown restraint and are only modestly increasing production as they head into 2007, according to USDA's December Hogs & Pigs Report, despite the record run of profits (34 consecutive months). Most of the categories reported production equal to 2006 levels, or only 1 percent higher. The national swine herd on Dec. 1 was 62.1 million head, 1 percent higher than in 2005, but 1 percent lower than reported this past September.
Rising corn prices are the logical reason for these modest numbers. That factor will continue to play a role in the year ahead, both in production numbers and market-hog weights. In the end, pork production will be up about 2 percent in 2007. Productivity continues strong as litter size reported on Dec. 1, averaged 9.13 pigs, up from 9.03 the previous year.
Lending support to hog prices is the fact that the packing industry has increased capacity. Today, the daily slaughter capacity is 430,000 head, compared with 410,000 a year ago. "We're running about 88 percent of capacity today, compared with 91 percent last year," says John Nalivka, president of Sterling Marketing, Vale, Ore. "That will be a pull on prices, which is positive for producers."
Dan Bluntzer, research director for Robston, Texas-based Frontier Risk Management, points out that the industry has dealt with expansion temptations in a more orderly fashion in recent years than in the past. "Today we see a 1 percent to 2 percent year-over-year growth versus 5 percent to 6 percent in the past." He points out that due to production contract arrangements and the fact that many finishers raise hogs as much for the manure as for the hogs, the drivers are different today than in the past. "Profits are in different hands," he says.
Other reasons for the tight-fisted approach to growth is that producers have used the run of profits to "pay off a lot of debt," says Ron Plain, University of Missouri agricultural economist. They've also reinvested in facilities by remodeling, and products like steel and concrete cost more today. "Finishing space has had to expand because of productivity growth," he adds. "Also, a lot of producers own farm land, so some of the hog profits may have helped purchase land."
In conversations this fall, Bluntzer found that in general, pork producers' have expressed that they've "had a good thing; let's not mess it up."