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Serving: United States

U.S. Hog Inventory Up 1%

Prices in 2007 could hold near 2006 levels, but profits likely will not.

Producers told USDA that they had 1% more all hogs and pigs on Dec. 1 than a year ago. The breeding herd was up 1% from Dec. 1, 2005, but down 1% from Sept. 1, 2006.

The September-November 2006 farrowings and December 2006 -February 2007 and March-May farrowing intentions ended up in the top half of trade expectations before the report.

"Still, the quarterly inventory numbers appear to be well anticipated with most categories coming in near trade expectations," says John Harrington, DTN livestock analyst.

Hogs on a good run. John Lawrence, Iowa State University economist calculates November was the 34th consecutive month that the average Iowa farrow-to-finish hog producer made money. That's the longest stretch of profits since ISU economist Gene Futrell began the data series in the 1960s.

"One reason for continuing profitability is producers are restraining expansion," points out Dan Bluntzer, Frontier Risk Management, Robston, Tex. "Historically solid profits have enticed producers to expand at a 5% to 8% annual pace."

Outside forces are impacting U.S. pork production. "Canada's strong dollar and packing and processing issues are bringing liquidation in Canada," says Bluntzer. "Higher corn prices are impacting beef and poultry here. The beef industry will try to hold cattle outside of feedlots as long as possible. That could create a beef supply hole next spring. That's all constructive for U.S. pork."

Price prospects. "History says pork producers need to pile up red ink before they'll cut production," notes Ron Plain, University of Missouri economist. "But the 2% uptick in December-February farrowing plans followed by a half percent rise in March-May farrowing intentions suggests hog producers are slowing production growth."

However, slower growth may not prevent red ink. Looking into 2007, prices Plain projects on a live equivalent basis are: 

  • First quarter $44 to $47.
  • Second quarter $47 to $50.
  • Third quarter $44 to $47.
  • Fourth quarter, $40 to $43.
"We're currently projecting a 2007 annual average in the $44 to $47 area," says Plain. "Those prices are near 2006 levels. Unfortunately, with higher feed costs we see breakevens near $50. That says producers will face red ink in 2007."

ICE raid impacts. The Dec. 12 Immigration and Customs Enforcement raids at Swift beef and pork packing plants sent shockwaves reverberating through the meat complex. "Hog slaughter dropped about 20,000 head that day below what it would have been," says Plain. "But the impacts were short-lived. Packers made up for most of the lost production with Saturday Dec. 16 slaughter."

While the raids did not appear to be as disruptive as first thought, uncertainty lies ahead on when ICE may strike again.

"It's one thing to hold a knife on the kill floor," notes John Nalivka, Sterling Marketing, Vale, Oregon. "It's another to be running a knife on the fabrication floor. Taking more highly skilled people off the production line would have a longer impact because of the time needed to train people to get up to speed."

Consumer price trends. High corn prices trim livestock production which boosts hog and cattle prices. Higher livestock prices beget higher consumer meat prices.

Nalivka does not anticipate any tightening of meat supplies and higher consumer meat prices in the immediate term. "If meat supplies do tighten it will be because producers market at lighter weights due to higher feed costs," he says. "If any impact comes on consumers it will be late in 2007 and into 2008."

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