Higher than expected slaughter numbers released last Friday in the Sept. 1 USDA Hogs and Pigs report are casting a bearish tint to price expectations. Fall slaughter is now expected to be up about 3 percent, which was just a bit higher than expected.

“Some downward adjustments in the breeding herd may be needed in the coming year as the industry is forced to respond to both higher feed and other input costs and to the potential slowing of export growth,” predicts Chris Hurt, Purdue University Extension marketing specialist. “Pork producers had a great profit run stretching back to early 2004, but that long run of pleasant financial days appears ready to come to an end." So far, the pork industry has escaped making the adjustments necessitated by higher feed prices

Hurt's comments came as he reviewed the state of the industry in the wake of the USDA's latest report. "There's going to be a bit more pork in the marketplace this fall, and that's just enough to tip the scales toward lower prices, especially given concerns about slaughter capacity," Hurt said. "Unfortunately, high costs will likely depress margins into the red this fall where they may remain through 2008."

Record live hog imports from Canada add to the problem. "Canadian live imports are up 11 percent so far in 2007, composed of 19 percent more slaughter hogs and 6 percent more SEW pigs,” Hurt continued. “Live imports from Canada will represent more than 9 percent of total U.S. slaughter this year, a new record."

In addition to a few more market hogs than anticipated, the USDA's quarterly inventory report found a few more sows than expected. The sow inventory was up about 1 percent, but represented about 0.3 percent more than anticipated. This demonstrates how the pork industry has continued to expand output even in the face of dramatic increases in costs of production led by feed prices and other inputs.

"Growing export demand has enabled the industry to continue expanding in recent years, but that support is giving way this year," Hurt noted. "So far in 2007, exports are down 3 percent. The industry continues to expand for the export market, which is weak, at least in 2007."

Pork supplies are expected to be up about 3 percent this fall and winter, and then up about 2 percent next spring and summer. In addition, pork will face some added competition from chicken production in 2008, but beef supplies will remain moderate and generally supportive to domestic pork demand.

Hurt predicts hog prices to be somewhat lower this fall and average in a range from $44 to $47 per hundredweight on a liveweight basis for 51-52 percent lean carcasses. Absolute daily lows could move into the lower $40s. Late-October or early-November tend to be the periods for seasonal lows. Winter prices are expected to improve about $2 and to average in a range from $45 to $48. Spring and summer prices should be much higher and are expected to average in the very low $50s.

"Concerns have grown once more about feed prices in the upcoming year," he said. "Using current futures prices for corn and soybean meal and adjusting for the expected basis, costs of production are expected to be above hog prices for most of the next 12 months. Costs during this time period are estimated at $51.50 per live hundredweight and hog prices are forecast to be near $48.50.

"This means the industry may operate at a loss near $3 per hundredweight over the coming 12 months. The larger losses of about $4 would occur this fall and winter, while smaller losses of about $1 are expected next spring and summer."

Source: ThePigSite.com