January 30, 2004

Difficult Year For US Hog Producers In 2004

Hog producers can expect another difficult year in 2004 as live hog prices is forecast to average in the mid to high US$30s, said University of Missouri economist Ron Plain.

According to Plain, live prices should average between US$39 and US$42 in the second quarter of 2004, US$38 to US$41 in the third quarter, and US$32 - US$35 in the fourth quarter.

This year could shape up a lot like 1999, the year following the great price disaster of 1998. This is because 2003 tracked very similarly to 1998, said Plain. In fact, in the last quarter of 2003, almost exactly the same number of hogs was slaughtered in 1998 when prices bottomed at US$8 per cwt. The only reason that 2003 faired better was because of strong exports, higher total meat demand, and adequate slaughter capacity.

Plain worries about 2004 because he has indications that expansion is proceeding rapidly among the nation's largest producers. Those figures come from the recent University of Missouri survey of the large producers (over 50,000 head per year), in which they indicate a 7% expansion for 2004.

Looking at 70-year records of the pork industry, Plain says that on average the industry has grown by about 1.5% per year. That much extra pork is consumed by the growing population, and expanding exports. Using Iowa State University estimates of profit and loss in the industry, Plain compared years when pork expansion was either more or less than 1.5%, with the profitability numbers.

"In years when expansion was less than 1.5%, Iowa, producers showed a profit of about $15 a head," said Plain. "In years when expansion was more than 1.5%, the average producer lost money."

That's what worries him about 2004. If expansion of the large producers materializes at 7%, it will be very difficult for the en tire industry to stay at or below the magic number of 1.5%.

"In the year 2000, only about 2% of the hogs were produced by people marketing under 1,000 hogs per year," said Plain. "We've lost a lot of the producers who could downsize their sow herds."