Pork, Pork, And More Pork.

Theres an old joke about the businessman who was losing money on every item he sold, but thought he could make it up on volume can be applied to the US pork industry. Last Friday’s Quarterly Hogs and Pigs Report indicated there were so many hogs around that money was being lost when they were sold. But there was a large volume on hand to sell. The market and livestock economists all knew there would be a lot of hogs on hand for USDA to count, but no one guessed the national inventory would be 6.5% above the March 1 count of 2007. The pig crop for the past two quarters was 6-7% more than comparative numbers a year earlier. In fact, market hog numbers were up 7.2% and the breeding herd was even up, meaning there will be a lot of inexpensive pork for the consumer and red ink for the producer. John Lawrence and Shane Ellis at Iowa State believe the burdensome numbers of hogs on hand will push live hog prices into the $42-$44 range over the next year. That makes a lean carcass price at $55-$59 and they warn producers to not anticipate any seasonal price increase. At the University of Missouri, Glenn Grimes and Ron Plain are slightly more optimistic about prices, but not much. They expect a 3% demand growth which will pull April through June marketings into the upper $40 range, and fade into the low $40 range for the balance of the summer. Prices might not even be that high, if it were not for the export demand, which Grimes and Plain report being 26% higher than 2007, and the greatest monthly total for pork exports. That might be a hollow victory, given the significant financial losses producers are suffering with each hog sold. Lawrence and Ellis forecast that to continue through early 2009 without some change. With current corn prices, losses are estimated at $40 per head for contract producers, and similarly significant losses for producers raising their own corn. The main challenge for the industry is the fact the breeding herd continues to grow. It was up .5% in last Friday’s report. And Grimes and Plain lament that statistic, “The bottom line, we hope, is that the current breeding herd is somewhat smaller than a year earlier and marketings will not be as large in the fourth quarter of 2008 and the first quarter of 2009 as is indicated by USDA’s report.” They think that the breeding herd was larger a year ago than what USDA had calculated, which would indicate the trend could be down and not continuing to grow. Revisions of USDA estimates were made for the past two Quarterly reports, which Grimes and Plain attribute to problems with analyzing the impact of the circo virus and the success of its vaccine. That revision also caught the attention of Mike Brumm, who writes the University of Nebraska pork newsletters. But Brumm believes the discrepancy was the result of Canadian-born feeder pigs coming into the US for finishing, “Based on my experiences, in prior years almost all of these Canadian born pigs were sold to US owners for growth to slaughter. However, as the Canadian dollar strengthened relative to the US dollar last summer, as opportunities for market access declined in Canadian markets and as feed grain prices rose relative to US prices, an increasing number of Canadian producers began placing pigs in US facilities while retaining ownership of the pigs.” Brumm is also less than optimistic about a decline in production, saying the growth in pork concentration in Iowa is expected to continue because there is a large number of facilities being planned and construction season is nearing. But the Iowa livestock economists say they are watching consumption more than production, and fear the slowdown of the US economy will pressure pork demand. Both they and the Missouri analysts point to the value of the dollar and say it will be the key to continued pork export trade. Summary: USDA’s Quarterly Hogs and Pigs Report indicated higher estimates for hog numbers then had been expected. Because of the volume, market prices will be depressed into the $40 range, and losses per head will continue to mount because of the high corn prices. Due to revisions that USDA made in its numbers of prior reports, the changes were attributed to the complex relationship between US and Canadian pork producers. There should be a high volume of low priced pork in the meat case for the coming year.