U.S. pork producers are not jumping into the expansion pool to any significant degree, according to USDA’s December Hogs & Pigs Report released on Dec. 23. The numbers, compiled as of Dec. 1, reported increases across the board totaling 1 percent to 2 percent over the same level in 2010.
High productivity levels continue as the fourth-quarter 2011 pig-per-litter numbers averaged a record 10.2 pigs. Add that to the slight increase in market hog and breeding herd numbers, and 2012 could see 2 percent or more slaughter hogs going to market than in 2011.
The question that needs some attention is whether there will be adequate packing plant capacity in the coming year for the rise in slaughter hog numbers.
“Slaughtering 430,000 per day is easily done with ‘normal’ packer margins,” says Bob Brown, independent meat market analysts in Edmond, Okla. “We better not see much more than a 2 percent gain in hog numbers going forward or we could be in a pretty tight situation in the fourth quarter.”
Steve Meyer, president of Paragon Economics, points out that a spring 2011 packer survey showed that that plants could run 5.4 days a week at the 436,030 level without pressuring margins. “We’ve been right up against that this fall,” he notes. As for fourth-quarter 2012, 2 percent more hogs would be a warning light.
“We’ll be able to handle them (through the packing plant),” he notes, “but we may not like the price.”
If there are slaughter capacity concerns to arise, the fourth quarter is always the timeline. One sign of relief comes in the fact that the March/May farrowing intentions are reported to be down 1 percent from 2011 levels. Of course, those intentions can change by the time they’re reported as reality.
“If the numbers are right, it makes it more likely we can be okay in the fourth quarter,” says Ron Plain, University of Missouri agricultural economist. While pork producers should “make a bit of money this next year,” he adds, “there’s still enormous risk out there.” Specifically, he’s talking about needing good weather and growing conditions for the next corn crop.
Pork producers’ increasing business mentality is part of why more expansion has not materialized despite modest profits in 2010 and 2011. “More of the sow herd is controlled by business people and they think about return on investment. Expansion depends on profitability,” says Victor Aideyan, senior risk management consultant, HISGRAIIN Commodities, London, Ontario, Canada.
With significant cuts in beef and chicken supplies next year, along with continued strong sales of U.S. pork exports, pork production should be profitable. Based on today’s outlook, Meyer pegs 2012 profits averaging $9.70.
Regarding prospects of new packing plant capacity coming on line any time soon, he notes—“There’s nothing obvious.” But he adds there could be some slight gains in cooler capacity depending on the plant. For example, Indiana Packers bought some adjacent land to its existing plant this year and could add some capacity. However, as Meyer points out, “it’s already handling 17,000 pigs per day; there’s not a lot of room to increase. State of the art is 18,000 to 20,000 head.”