January 6, 2005

 

 

Pork Profits Yet To Bring About Herd Expansion In The US

 

According to USDA's quarterly hogs and pigs report for December, there were no encouraging signs of herd expansion even as a profitable year for pork producers wrapped up.

 

The US hog breeding herd of 5.97 million head on Dec. 1 was slightly smaller than a year ago and lower than expected. The total hog inventory of 60.5 million head was virtually unchanged from a year ago.

 

The September-November pig crop was up slightly from 2003, and producers' December-February farrowing intentions were up 1 percent from a year ago. But intended farrowings for March-May were down slightly from the same period in 2004.

 

The US pork industry remains reluctant to expand output despite $50-plus per hundredweight hog prices for much of 2004 and a decline in production costs since spring, said Chris Hurt, Purdue University agricultural economist.

 

Pork producers were anxious about high feed costs in the spring, but those fears dissipated as record corn and soybean crops developed and grain prices plunged. Average production costs fell from about $49 per hundredweight last spring to near $38 as 2004 ended, Hurt said.

The economist expects producers to enjoy some very good profits during at least the first three quarters of 2005 and eventually add to herds.

 

"These profits are tremendous, and they will certainly lead to expansion," he added.

 

Dale Durchholz, AgriVisor Services analyst, urged against becoming wildly optimistic. Consider hedging opportunities when lean hog (carcass) futures approach 80 cents per pound on the June-July contracts and the middle to high 60s on the October contract, he advised.

 

"At some point, the economics of the business are going to cause some expansion," Durchholz added.

 

Foreign appetites for pork will be hard-pressed to exceed 2004's record-high level, he added. And with signs that the low-carb craze may be moderating, protein demand could begin to moderate.

 

Another analyst said hog herd expansion could be closer than last week's report indicated.

USDA has fairly consistently underestimated the number of eventual farrowings over the past three years, said Bob Brown, independent livestock and meat consultant of Edmond, Okla.

 

"Supplies are probably going to end up higher than what this report would suggest as we move into 2005," he said.

 

The US pork industry has been in an entrenchment mood since the financially devastating years of 1998-99, Hurt said. Only through big increases in Canadian hog output has US hog slaughter been able to grow.

 

The Dec. 1 breeding herd inventory was up 2 percent in Illinois and 1 percent in Iowa - two states with tremendous corn crops this autumn, Hurt said. But breeding inventories were down 3 percent in Indiana and Ohio and down as much as 25 percent in Arkansas. Breeding herd numbers were steady in Minnesota, Missouri, and North Carolina.

 

Citing conversations with producers in Indiana, Hurt said some farmers have viewed the current period of good prices and profits as an optimal time to exit the industry.