July 30, 2009

US hog producers can expect a return to profitability next year following a 2009 herd liquidation of 5 percent due to higher production costs.

 

The key to a higher hog market will depend largely on increased demand. In 2009, hog producers fought through a decrease of demand brought on by the worldwide AH1N1 flu-virus outbreak along with the economic recession.

 

In addition, hog operations underwent further liquidation following surging feed costs as corn and soymeal prices shot higher.

 

According to Sterling Marketing Inc. president John Nalivka, this year's fourth quarter, that liquidation theme is expected to continue being reflected in a 2-percent drop in hog slaughter figures against a year ago.

 

Nalivka said the expected fourth quarter decrease was preceded by a hog liquidation trend that started in March 2008 with a breeding herd of 6.28 million sows. In June 2009, the breeding herd dropped 3 percent from a year ago to 5.97 million.

 

Seasonally, fall hog supplies increase, following tightening numbers in the summer months. As the industry continues to see a trend of larger integrated operations, with the ability to increase or reduce hog numbers quicker than traditional hog operations, that seasonal factor is being smoothed out.

 

Nalivka said that the current herd liquidation still creates tighter supplies, lower slaughter numbers and higher prices for 2009's fourth quarter.

 

For October, November, and December, the hog market is seen as making that first turn toward profitability, heading into 2010.

 

Nalivka said fourth quarter hog prices, on a lean carcass basis, are estimated at US$50 per hundredweight, 10-percent below a year ago.

 

He said though hog producers consider US$62 per hundredweight a breakeven price, if realised, the fourth quarter price drop against a year ago beats the 2009 third quarter year-over-year decline of 27 percent.

 

He said that at the end of the year, the 2009 annual hog price, on a lean carcass basis, is seen as being 14-percent below a year ago.

 

However he expects hog prices to hit a peak in the third quarter at US$64.75 per hundredweight, 16-percent higher against a year ago.

 

After a drop of 2 percent in 2009, Nalivka sees the 2010 total hog slaughter falling 3 percent to 110 million head in 2010. A 4-percent drop in total hog slaughter is forecast for the first three quarters of 2010, and a 1-percent drop in the fourth quarter.

 

With an expected 5-percent drop in hog numbers for 2009, 3-percent fewer cattle on feed, and less poultry production, it is clear demand is in a slump.