The second quarter of 2009 ended with both pork production and hog and pork prices below a year ago, which strongly suggests lower product demand ahead, according to USDA’s Livestock, Poultry and Dairy outlook Report issued Friday. Lower production and lower prices are expected to persist for the balance of this year.

It is likely that May exports—particularly to Mexico and Russia—did not register the full negative impacts of H1N1-related slow-down in demand for U.S. pork. Pork exports in May were almost 307 million pounds, 36 percent below May 2008.

Lower production and lower prices are expected to persist for the balance of this year. Both third and fourth quarter commercial pork production is expected to be lower than a year ago. The third quarter production estimate, 5.47 billion pounds, falls almost 3 percent below a year ago. Fourth quarter production is expected to be 6 billion pounds, or almost 2 percent below last year.

Soft product demand—both domestic and export—is reflected in estimated second half 2009 hog prices: third quarter prices are expected to average between $44 and $46 per cwt, more than 21 percent below third quarter 2008. Fourth quarter prices are expected to average between $39 and $41 per cwt, almost 5 percent below last year. For 2010, commercial pork production is estimated at 22.5 billion pounds, more than 1 percent below 2009. Hog prices next year are expected to average between $46 and $50, almost 13 percent above prices this year.

Reductions in the U.S. breeding herd have been solw to materialize. The modest reductions have been tempered by surging litter rates, according to the report. The litter rate for March-May was 2 percent greater than a year ago and 4 percent above June 1, 2007.

The down side to increasing litter rates is that they have likely mitigated recent efforts to reduce U.S. hog production. To hold pig crops constant, in an
environment where productivity is increasing, farrowings must be reduced. Heavier carcass weights also reduce the effect of lower farrowing rates.

Reduction of industry breeding capacity is both a necessary and predictable step to restore profitability to the sector, given the magnitude and duration of negative producer returns. Iowa State University estimates average monthly per-head losses at about $22 since October 2007, the point where persistent losses began.

Read the full report.

Source: USDA