US hog farms slow herd cuts on profit prospects

US hog producers may have slowed herd reductions in the three months through February as the prospects for profitability improved after more than two years of industry losses.

Producers without risk-management plans may have lost US$2 per hog sold for slaughter in February, compared with losses of US$21.50 a head in February 2009, said Ron Plain, a livestock economist at the University of Missouri in Columbia.

Record feed costs in 2008 and slumping pork demand in 2009, stemming from the recession and an outbreak of AH1N1 flu, have led to about US$6.2 billion in losses for the industry since October 2007, Plain said.

Previously, hog futures for June settlement dropped 1% to 82.05 cents a pound on the Chicago Mercantile Exchange (CME), after climbing to 83.5 cents the previous day, the highest level for a most-active contract since May 1997. Futures rose 13% in the past year, as supplies shrank and prospects for demand improved.

Meanwhile, corn has dropped 12% this year on the CBOT, improving increasing prospects for profit by reducing feed costs for farmers, Plain said.

The overall US hog herd may have shrunk 1.2% as of March 1 to 65.041 million animals, from 65.819 million a year earlier, according to the analysts. The US swine inventory to be sold for slaughter may have fallen 1.1% from a year earlier to 59.17 million hogs, analysts said.

Strengthening pork demand has boosted wholesale pork prices by about 7.9% this year, raising meatpacker profits and supporting higher prices for hogs for immediate delivery to slaughterhouses, said John Nalivka, the president of Sterling Marketing Inc., a livestock-industry consulting company in Vale, Oregon. The USDA estimates that pork exports will total 4.5 billion pounds this year, up 9.1% from 2009.

US meatpackers have made about US$2.85 per hog processed this year, compared with losses of US$9.87 during the same period in 2009, Nalivka said. He estimates that hog farmers made about US$3.50 per head from December through February.