January 8, 2008

2008 may be worst year ever for US hog producers
 

US pork producers may face the worst year ever in 2008 in terms of financial losses, according to Chris Hurt, agricultural economist at Purdue University.

In a hog market outlook newsletter released Monday, Hurt said this year may replace 1998 as the worst financial year for pork producers in modern history. The No. 1 culprit is high feed costs and the second is too many hogs.

Unrelenting gains in corn and soy meal prices will potentially "drive 2008 costs to the highest annual level ever in the history of hog production," Hurt said. Also, there are more slaughter hogs than accounted for in the US Department of Agriculture's inventory reports, with no signs of moderation.

Estimates for slaughter at the beginning of the last quarter of 2007 were about 4.5 percent higher. Actual slaughter for the period, however, was up almost 9 percent. USDA increased last spring's farrowings somewhat, but there were still nearly 3 percent more unexplained slaughter hogs, Hurt said.

"The great worry is that there may still be several percent more hogs than USDA has counted in the December update," he said. The December USDA inventory count indicated that slaughter would rise by about 4 percent for the first five months of 2008. If USDA has undercounted, slaughter could be 6 percent to 7 percent higher, he said. USDA indicated that the Dec. 1 breeding herd was up by just one percent and that winter farrowings would rise by two percent and spring farrowings by one percent.

"Pork supplies are expected to expand by 3 percent to 5 percent in each of the first three quarters of the year. By the final quarter, production may be about the same as the final quarter of 2007, but that was way too much pork," Hurt said. Annual production in 2008 will rise by about 3 percent. This, he said, is too much pork to be sold at profitable prices.

Live hog prices for 2008 are estimated at US$46.30 per hundredweight on a live basis, down from US$47.10 in 2007. Prices are expected to average in the very low US$40s in the first quarter of the year, rise to the high US$40s for the second and third quarter and finish the last quarter with mid-US$40s averages. Annual prices for 2008 are expected to be the lowest in five years.