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Hog Cost/Price Squeeze

Rising pork output pressures prices, fewer corn acres boost costs.

The end of March brought more bad news for U.S. hog producers.

Ron Plain, University of Missouri economist, forecasts 2008 live hog prices will average near $42 per cwt.-- the lowest since 2003. Unfortunately, costs of production will average record-high near $54 per cwt.

"The result will be a loss of $12 per cwt. or roughly $32 per head, also a record," he cautions.

Monday's USDA March Prospective Plantings report predicted 2008 corn acreage would total 86.0 million, down 8.1% from last year. "Fewer corn acres make record high feed costs likely this year," says Plain.

Hog inventories up. Last Friday’s quarterly survey of the U.S. swine inventory came in above the high end of trade expectations. At 107.2% of March 2007’s level, the market herd on March 1 was 2.6 percentage points above the average of pre-release trade estimates.

"As expected, USDA revised upward some past inventory estimates," says Plain. "Based on the December report, hog slaughter during December-February was expected to be up a bit less than 5%. It actually came in 11.1% above the same months last winter (or up 10.5% after adjusting for the increase in imports of Canadian slaughter hogs). USDA revised up their December market hog inventory by 3.1%.

USDA also hiked the size of the June-August pig crop by 1,229,000 head.

Improving performance is positive. Better breeding herd performance helps explain the larger inventory. Pigs per litter in the December-February quarter averaged 9.21, up 1.3% compared to a year earlier and the 18th consecutive quarter above year-ago levels.

"Farrowings per animal in the breeding herd were up an amazing 5.4% in June-August and up 4.1% in September-November," says Plain. "Both quarters averaged more than 500 litters farrowed per 1,000 animals in the breeding herd, a first."

More pigs per litter and higher farrowings per animal in the breeding herd spread fixed costs for the breeding herd over more units of output. That's boosts overall efficiency.

Market hog inventories by weights surge. Producer responses to USDA surveys suggest the inventory of market hogs weighing 120-179 pounds was up 6.5% on March 1 and the inventory of market hogs weighing 60-119 pounds was up 7.0%.

"If these numbers are right, second quarter hog slaughter should be up roughly 7%," says Plain. "If so, expect April-June live hog prices to average in the upper $40s per cwt.

USDA pegged the inventory of market hogs weighing less than 60 pounds up 7.4% on March 1, implying third quarter hog slaughter will be up roughly 8%. Plain expects third quarter live hog prices to average in the mid $40s.

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