October 1, 2003

US Hog Industry Expects Modest Losses

US hog producers have hoped for solid profits by this time, ever since they cut back on the size of the breeding herd for five consecutive quarters. However, several market factors have gotten in the way, according to a Purdue University Extension press release.

"Now the outlook is for modest losses this fall and winter, with some very small profits next spring and summer," said Chris Hurt, Purdue Extension specialist, in a weekly hog outlook report. "The negative market factors include the increased flow of hogs and pork from Canada due to the restriction of beef imports and higher corn and soybean meal prices than had been anticipated a few months ago."

Hog numbers and pork supplies will be somewhat higher than had previously been anticipated, according to the September Hogs and Pigs inventory report from the USDA. While the breeding herd is three percent smaller than last year's herd, there are indications that farrowings will not be down as much. The summer pig crop was only down by two percent, while fall farrowing intentions are down only one percent, and winter intentions are unchanged.

"The breeding herd has been in a reduction phase after financial losses in the last half of 2002," said Hurt. "Normally, one would expect the herd to stay below year-earlier levels for about six to eight months."
The market herd as of Sept. 1 was down 2 percent, but the number of pigs available for marketing this fall and winter will be about 1 percent lower. Marketing weights will likely be somewhat higher, so total pork production this fall and winter may be unchanged to down modestly. For the spring and summer of 2004, supplies are expected to begin to climb by about one percent.

"More pork is not what hog producers want to see, as prices may be below cost of production for portions of this fall and winter," said Hurt.

The breeding herd was lower in most major production states. "This summer's hog prices have been influenced by a large increase in hogs and pork coming from Canada, as the North American beef and pork markets adjust to restricted beef flows from Canada due to BSE there," said Hurt. "Hog imports from Canada include both young pigs that are fed-out in the United States and slaughter hogs.

Last year, the total live imports were 5.9 percent of total U.S. slaughter. That number will be closer to 6.5 percent this year. However, total live imports this summer were over 8 percent of U.S. slaughter. USDA reports that processed pork imports have been up as well. In June and July, pork imports from Canada were higher by 14 percent over the same months in 2002, and are up 16 percent for the year.

Hurt said the flow of Canadian hogs and pork should diminish in coming months. The USDA has approved importation of muscle beef cuts from cattle under 30 months of age, and has a permit process in place to allow more beef to enter the United States. "In addition, the value of the Canadian dollar has increased by 14 percent in 2003, which will make shipments from Canada to the United States less favorable over time," said Hurt.

He said fall hog prices are expected to average in the $36-to-$40 range on liveweight basis. Winter prices are expected to be about $1 higher. Spring and summer 2004 prices are expected to average in the $39-to-$44 range.