January 8, 2007

 

US hog producers expected to suffer losses in early part of year

 

 

The latest USDA's 2006 fourth quarter hogs and pigs report presents a lot of "ifs" to hog producers, but the overall outlook, according to economists, is that hog producers may suffer minor losses next year before prices rise in summer.

 

John Lawrence, livestock economist at Iowa State University, said the USDA figures were near trade expectations and should not cause a major market adjustment.

 

The USDA report indicates that the US inventory of hogs stands at 62.1 million head, up just 1.1 percent from the previous year. The number of market hogs also increased 1.1 percent, while the breeding herd increased 1.3 percent.

 

December through February farrowing intentions for the nation showed a 2.2 percent increase from the previous year's levels, suggesting that hog slaughter for the third quarter of 2007 would be at least 2 percent higher than in 2006, Lawrence said.

 

However the March through May 2007 intentions are up only 0.5 percent. Iowa's farrowings are expected to be lower this winter than last year.

 

Iowa's hog inventory increased at a faster pace than the nation and now stands at more than 17 million hogs. The state's breeding herd also increased.

 

Meanwhile, Canadian hog exports to the US may slow down in 2007. The number of slaughter hog exports out of Canada declined 2 percent in 2006. The July-September pig crop in Canada was down 3.4 percent and farrowing intentions for October through December were down 2.1 percent, Lawrence noted.

 

A stronger Canadian dollar and a moratorium on hog buildings in Manitoba are expected to slow growth, he said, resulting in fewer Canadian hogs sent to the US for slaughter.

 

In the US, the demand for pigs by US finishers may not diminish due to the investments many made in their facilities.

 

Lawrence anticipates that pork prices for 2007 would remain slightly lower than in 2006. A $1 per bushel increase in corn prices would result in a US$4.44/cwt (live) increase in the cost of producing hogs, or US$6/cwt carcass weight, he said.

 

Pork producers may see some losses during the first quarter of 2007 but profits should roll in during summer barring more increases in soy and corn meal.

 

If corn prices remain in the mid-$3/bushel range, producers are expected to suffer losses in the fourth quarter, he said.

 

Economist Ron Plain at the University of Missouri-Columbia, said live hog demand strength has been aided by pork export growth, population growth in the US and increased slaughter capacity in the US.

 

If the strong live hog demand of the fall of 2006 holds through 2007, live hog prices are likely to average the same as in 2006 or slightly lower.

 

Higher corn prices may push the break-even price for average-cost producers to US$50-51 per cwt for 2007. The average-cost producer are most likely to suffer modest losses in such a case, Plain said.