Hog inventory Drops, But Not Far Enough Yet
The breeding herd is 8 percent smaller now than it was at this time last year, according to the recent USDA Hogs and Pigs report. But Purdue Extension agricultural economist Chris Hurt says gains in litter size and heavier market weights mean pork supplies will be down by only 2 percent to 4 percent during the coming year.
"This small level of supply reduction remains discouraging and does not point to any quick return to profitability," Hurt says.
There are three reasons for the current situation, he says.
* Sows still in the breeding herd are being weaned earlier and returning to pregnancy earlier, increasing the number of litters.
* The average number of pigs per litter--now at 8.86 and 2 percent higher than last year's rate--continues to grow.
* Hog weights are expected to keep rising due to moderately priced feed. Hurt expects weights to rise by 1 percent in the year ahead.
"The productivity growth means that an 8 percent reduction in the size of the breeding herd may result in only a 3 percent decline in pork production over the next year," Hurt says. "The 8 percent lower breeding herd is expected to result in only a 5 percent reduction in fall farrowings. With an increase of 1 percent in pigs per litter and in market weights, supplies next spring will be down only 3 percent.
"Perhaps the most disturbing number in the report is the indication that pork producers will only reduce winter farrowings by 3 percent. With higher pigs per litter and weights, this means only a 1 percent reduction in pork supplies for summer 2000, or a virtually unchanged supply situation next summer."
Hurt says if this number is accurate, it suggests that the breeding herd will not be trimmed much more. However, he adds that because this is a first intention, it seems more likely that farrowings will be down more this winter than producers have indicated.
"Hog prices are expected to go through one more dip this fall and winter before returning to break-even prices early in the spring," Hurt says. "Pork supplies this fall and winter will be down about 3 percent. Terminal prices, measured as live weights, are expected to drop into the higher $20s for a period in late October and early November. However, the average price for the last quarter of this year is expected to be in the very low $30s, with costs of production averaging around $35."
Hurt says winter prices are expected to improve about $2 per live hundredweight with first quarter average price in the $31 to $35 range. Upward movement of prices also should occur into the spring with prices finally moving back above break-even levels by late March or early April. Prices for the second quarter of 2000 are expected to be in the very high $30s with some days above $40 in the late spring.
As for price prospects by summertime 2000, Hurt says if producers farrow just 3 percent fewer sows this winter, there will be no strong profit potential and, "pork supplies next summer will be down only 1 percent with prices averaging near $40 per live hundredweight."
Hurt predicts production costs for farrow-to-finish operations will be in the $35 to $37 range from this fall through next summer based on current futures prices for corn and soybean meal. And he adds that higher costs will continue next summer as corn and meal prices rise from harvest lows.
"This means continued losses for much of the industry through this fall and winter. While few will cover total costs of production, many will cover out-of-pocket costs and should not leave the industry given prospects for a return to break-even by early next spring. This report did not provide the hoped for bullish turn-around, but the cycle timing is ripe for that to occur in the December or the March 2000 report. This also provides some encouragement for producers to hold on."