September 23, 2010

 

Surge in US corn prices puts hog herd at four-year low

The US hog herd in Q3 was likely the smallest in four years as a 60% surge in corn prices since the end of June broke expansion plans despite strong margins, analysts said.

 

Producers, who turned the financial corner recently after two years of losses following the rally in the corn price to a record high in 2008, are reluctant to expand operations, particularly with corn prices rising once again.

 

The USDA will issue its third quarter hogs and pigs report for 2010 on Friday (Sep 24) and analysts, on average, estimate the US hog herd at 64.955 million head, 97.2% of a year earlier, the breeding herd at 5.793 million, or 98.6%, and the market hog supply at 59.184 million, or 97.1%.

 

"This would be the lowest total hog number for this time of year since 2006. The influence of feed prices moving higher over the last two months kept everything in check. The industry just wasn't in good enough economic shape to step back in and start expanding right away after we saw several months of profitability," said Bob Vande Vorde, livestock analyst with Mast Group LLC.

 

Low numbers have supported hog and pork prices during the year. Hog prices rose to a two-year high early in the year and pork prices reached a record high in late August.

 

Hog numbers have remained low since falling the two prior years. High feed costs cut production in 2008 and in 2009 the recession and H1N1 flu cut pork demand. Analysts expect the breeding herd to be up slightly from June, but the smallest on record for September 1.

 

"It would be the smallest since they started keeping records and actually probably the smallest since sometime back in the 1850s's for September 1," said Ron Plain, livestock economist at the University of Missouri

 

The low breeding herd number is being offset by the large number of pigs-per-litter, which is the only category of the report that is above 100% of a year earlier. Breeders continue to show exceptional animal husbandry and that is resulting in more pigs being saved from each litter.

 

Estimates for pigs-per-litter ranged from 101 to 102% and averaged 101.4%. Those additional hogs saved will limit the pig crop decline to about 1.2% from last year. That would be better than the 2.5-3% fall that would have resulted from reduced production.

 

"It took the industry approximately 12 years to push litter sizes from eight to nine pigs, but the latest trend suggests they'll move from nine to 10 in less than eight years," said Dan Vaught with Vaught Futures Insights.

 

"Look for USDA to downward revise June market hog inventory and their estimate of both sows farrowed and pig crop during last winter, December/February. We had a smaller inventory in June than what they said. We're starting from a slightly smaller point than we thought we were. We're not yet back into the growth phase," Plain said.

 

Based on projected hog supplies, the hog slaughter rate should remain under year ago levels into early next year.