American Hog News USDA

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USDA Quarterly Hogs and Pigs Report - September 2009
This quarter's quarterly Hogs and Pigs report from the USDA's National Agricultural Statistics Service (NASS).

 

Introduction
This document aims to pull together, in one place of reference, all the various information generated by the USDA Quarterly report. This document includes:

USDA Quarterly Report: September 2009
What It All Means - Expert Commentary
In The News - What The Media Says
Graph Data From The Report
Hog Inventories by State (external link - select State and navigate to file)
For a PRINTABLE VERSION of the full 24 page report in PDF format, including all the tabular data which is not shown in this article, please Click Here


USDA Quarterly Pigs and Hogs Report: September 2009
US Hog Inventory down Two Per Cent
US inventory of all hogs and pigs on 1 September 2009 was 66.6 million head. This was down 2 per cent from 1 September 2008 but up 1 per cent from 1 June 2009.

Breeding inventory, at 5.87 million head, was down 3 per cent from last year and down 2 per cent from the previous quarter. Market hog inventory, at 60.8 million head, was down 2 per cent from last year but up 1 per cent from last quarter.

The June-August 2009 pig crop, at 28.8 million head, was down 2 per cent from 2008 and down 1 per cent from 2007. Sows farrowing during this period totaled 2.97 million head, down 4 per cent from 2008 and down 5 per cent from 2007. The sows farrowed during this quarter represented 50 per cent of the breeding herd. The average pigs saved per litter was a record high 9.70 for the June-August 2009 period, compared to 9.51 last year. Pigs saved per litter by size of operation ranged from 7.40 for operations with 1-99 hogs and pigs to 9.80 for operations with more than 5,000 hogs and pigs.


US hog producers intend to have 2.94 million sows farrow during the September-November 2009 quarter, down 3 per cent from the actual farrowings during the same period in 2008, and down 8 per cent from 2007. Intended farrowings for December 2009-February 2010, at 2.93 million sows, are down 3 per cent from 2009 and down 5 per cent from 2008.

The total number of hogs under contract owned by operations with over 5,000 head, but raised by contractees, accounted for 46 per cent of the total US hog inventory, up from 43 per cent last year.

Revisions
All inventory and pig crop estimates for September 2008 through June 2009 were reviewed using slaughter, death loss and current import and export data. Based on this review, adjustments of less than one percent were made to the March 2009 and June 2009 total inventory. An adjustment of less than two percent was made to the December 2008-February 2009 pig crop.

Special Note
The market hogs and pigs weight groups will be changing beginning with the December 2009 Quarterly Hogs and Pigs release. The market weight group under 60 pounds will be changed to under 50 pounds, and the market weight group 60-119 pounds will be changed to 50-119 pounds. The 120-179 pounds and 180 pounds and over weight groups will remain the same. These changes align NASS market hogs and pigs weight groups more closely with international trade data. Statistics Canada is making similar changes to the Canadian market hogs and pigs categories. This will allow for a more uniform analysis of the US and Canadian hog inventories.

Estimates will be published in the December 2009 Quarterly Hogs and Pigs release for the new weight groups dating back to March of 2008 at the US and State level using slaughter data and current import and export data. These estimates will allow for historical analysis of the new weight groups and will provide a point of reference for proceeding quarters.

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Lifting of Funding Ban Could Help US Pork Producers
US - The National Pork Producers Council commended conferees on the agriculture appropriations bill, on text slated for the FY 2010 agriculture appropriations conference report regarding the use of appropriated funds by USDA with respect to potential imports of poultry products from China.



The conference agreement would allow USDA to use appropriated funds in FY 2010 to promulgate or implement a rule allowing imports of processed poultry or poultry products from China only after the Secretary of Agriculture notifies Congress that certain conditions have been met.

"We applaud the conferees for finding a path forward that will permit USDA to conduct a science-based risk assessment of Chinese processed poultry. It sends a strong signal to China that the US abides by its trade obligations and will base decisions about imports on sound science," said NPPC President Don Butler. "We expect China to do the same."

As the world’s biggest exporter of pork, the US pork industry has a compelling interest in making sure that foreign governments base their trade decisions on science. Last year, the industry exported nearly $5 billion of pork, including almost $690 million to China, the second largest destination.

In its efforts to move the process forward, NPPC was part of a coalition of agriculture and business organizations that urged the Congress to look closely at the issue. In August, NPPC issued a grassroots call to action, asking pork producers around the country to contact their members of Congress and urge them to find a science-based solution to the issue. And, at a critical point in the appropriations negotiations in mid-September, more than 130 pork producers came to Washington to meet with their congressional delegations on the issue.

"China is a very important market for the US pork industry," Mr Butler said. "Given the current economic state of our industry, with producers losing more than $21 per hog over the past two years, US pork exports to China are NPPC’s No. 1 trade priority."


 

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CME: US Swine Herd Continues to Decline
US - USDA’s quarterly Hogs and Pigs Report, released Friday afternoon, indicated that the US swine herd continues to shrink and that the pace of that reduction may have, as expected, increased in the June- August quarter, write Steve Meyer and Len Steiner in their Daily Livestock Report for 25 September.



The key numbers from the report along with the averages of analysts’ pre-report estimates appear in the table below.


Some highlights of the report are:

An increase in the rate of breeding herd liquidation. June’s quarterly report showed a breeding herd of 5.967 million head, 2.7 per cent lower than that of June 2008. The September 1 hers is estimated to be 5.874 million head, 3.1 per cent lower than on year ago. The June-August reduction is bad news and good news. The bad news is that this 1 June to 1 September decline of 93,000 head is small by historical standards. The last three liquidations of the US sow herd in 1995, 1999 and 2002 saw the herd drop by 210,000, 214,000 and 157,000, respectively, during the Jun-August quarter. The good news is that this 1 September estimate caught just the first three weeks of the higher sow slaughter that we have seen since CME Lean Hogs futures collapsed in July. That decline was arguably the clearest liquidation symbol yet to a sector badly in need of lower sow numbers given productivity increases and export disruptions. Therefore, a larger quarter-to-quarter and year-on-year reduction is very likely when the December count is taken — but don’t expect that reduction to be as large as past reductions either. The structure of this sector makes is very difficult to reduce numbers quickly.


The 180 lbs-and-over inventory, at 99.7 per cent of last year’s level. Slaughter thus far in September, when adjusted for fewer Canadian market hogs and one less weekday thus far this year, is almost identical to one year ago. That lends some credence to the report. The pre-report estimate of 99.0 per cent now appears low.


The 1 September breeding herd, June-August farrowings and June-August pig crop figures appear to fit well given the 2 per cent increase in litter size. The under-60-lb. inventory at 96.3 per cent looks about 1 per cent small relative to the pig crop even after considering that imports of Canadian pigs from mid-July through the end of August are nearly 300,000 head lower than one year ago.


Litter size keeps on growing — and growing at an unprecedented pace. As can be seen in the chart above, the rate of increase since June 2007 (which, by the way is almost precisely the time that vaccines for porcine circovirus (PCV) became available) is the best ever, averaging 2.1 per cent, year-over-year. The only period that gets close to that was December 1994 through September 1997, a period during which larger, generally more efficient farms were taking market share from smaller farms that were exiting the business. While some "weeding out the inefficient" is still being done, these recent gains are driven by excellent animal health and better genetics and management.

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Record High Pork Production for August
US - Commercial red meat production for the United States reached 4.08 billion pounds in August, down slightly from the 4.10 billion pounds produced in August 2008, according to the USDA's National Agricultural Statistics Service (NASS).

 

Pork production totaled 1.87 billion pounds, up four per cent from the previous year.

Hog kill totalled 9.34 million head, up one per cent from August 2008.

The average live weight was up seven pounds from the previous year, at 268 pounds.

January to August 2009 commercial red meat production was 32.5 billion pounds, down three per cent from 2008.

Accumulated pork production was down two per cent from last year.

August 2008 contained 21 weekdays (including no holidays) and five Saturdays.
August 2009 contained 21 weekdays (including no holidays) and five Saturdays.

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CME: Market Hog Imports Remarkably Stable
US - An alert reader pointed out to us this morning that the year-to-date data in Friday’s Production and Price Summary was out of date, write Steve Meyer and Len Steiner in their DLR for 28 September. Our bad for neglecting to update it.



The correct data for all four species are shown in the table below.

CORRECTED YEAR-TO-DATE DATA
Week Ending 9/27/2009
  Units Quantity Yr/Yr Pct
Change
FI Cattle Slaughter Thous. Head 24,286 -4.8%
FI Beef Production Million Lbs. 18,954 -3.8%
FI Hog Slaughter Thous. Head 81,914 -3.2%
FI Pork Production Million Lbs. 16,602 -2.0%
Young Chicken Slaughter Thous. Head 5,832 -4.4%
Chicken Production Million Lbs. 23,898 -4.7%
Turkey Slaughter Thous. Head 168.1 -5.1%
Turkey Production Million Lbs. 3786 -5.3%

Beyond domestic hog supplies, the other piece of the US hog and pork supply picture is, of course, imports of pigs from Canada. USDA’s Agricultural Marketing Service publishes data based on weekly tallies of Animal Plant Health Inspection Service border inspection data. The weekly data for 2007 through 2009 and the averages for 2003-2007 appear in the charts below. As can be seen, the numbers of market hogs and feeder pigs coming from Canada are down sharply this year (27 per cent and 71 per cent YTD, respectively) while imports of cull breeding animals are 3.6 per cent higher YTD.


Market hog imports have been remarkably stable at about 10,000 head per week since February. This volume of purchases is based on long-standing business relationship and contractual agreements. We expect imports to remain at this level for the foreseeable future provided the Canadian suppliers remain viable.

Feeder pig imports have generally trended downward at the same rate as last year but at a level about 30,000 per week lower than one year ago. As Canada’s breeding herd continues to shrink (Stats Canada’s 1 October inventory report will be release in mid- October), we expect this number to continue to fall at about the same rate that is has declined since March. That rate, though, depends on the specifics of Canada’s federal sow buyout program that was announced in August but whose specifics are not yet known.

That same program will also almost certainly decrease imports of Canadian cull sows — just as last year’s buyout did from July through September. Any reduction will boost sow prices n the US and provide more slaughter plant capacity for US sows, thus impacting the rate of US sow herd reductions.

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Market Preview: Hogs & Pigs Report Encouraging
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



Friday’s USDA Hogs and Pigs report indicates the pace of breeding herd liquidation may be quickening, generally agreeing with pre-report estimates. Chicago Mercantile Exchange (CME) Group Lean Hogs futures responded by moving $0.50 to $1.05 higher in early trading on Monday, with the largest gain being in the April contract.

Figure 1 shows the key numbers from the report as well as the averages of analysts’ pre-report estimates and the differences between actual and estimated year-on-year percentages. Some key numbers and implications include:


The breeding herd of 5.874 million head is 3.1 per cent smaller than last year, marking an increase in the rate of reduction from 2.7 per cent in June. That’s good news – especially since this survey captured 1 September inventories, only three weeks into this period of higher sow slaughter. The bad news is the June-September reduction is much smaller than in past liquidations. I believe that reflects the fact that clear liquidation signals did not come until the late-July break in CME Lean Hogs futures. I expect to see a larger year-on-year breeding herd reduction in the December report – even if profit prospects improve some. The cold, hard truth is that many producers are out of cash with no source of funds to support their operations.


The market herd was 0.5 per cent smaller than expected. That should be mildly supportive to prices over the next few months, but note that the largest share of this shortfall is in the under-60 lb. category. Q4 slaughter is going to be very near the levels projected by the June report. As Figure 2 shows, I still have eight weeks with the federally inspected (FI) slaughter above 2.3 million head. That includes the past two weeks when actual FI slaughter has exceeded the forecast level by 0.3 per cent and 1 per cent, respectively. Readers should note that Figure 2 assumes that imports of Canadian market hogs will continue to be in the 10,000/week range, but imports of Canadian feeder pigs will continue to trend downward at about 30,000 head fewer than year-ago levels.

Average litter size grew by 2 per cent, year-on-year, for the fifth straight quarter, which keeps average litter size growth above 2 per cent since mid-2007, when circovirus vaccines first boosted productivity. There has been a lot of talk about sow retention, the resultant increases in sow herd average parity levels, and the impact that may have on productivity, although we’ve seen no damage yet. Two possible reasons come to mind. First, we may not have pushed average parity figures far enough to get a high proportion of Parity 6+ sows whose productivity drops significantly. Second, and I think more likely, the gilts we are bringing in are simply more productive due to genetic selection and proper development. This litter growth rate must slow down at some point, mustn’t it? Even if it does, I don’t expect any slowdown to be large. See Figure 3 for the new trend.

Farrowing intentions for the next two quarters are perfectly in line with the sow herd size in the 1 September report. It seems a bit curious, but those are the numbers! I fear that the intentions reported may turn out to be low for both quarters because we’ve just experienced the best summer for conception rates in memory. Some anecdotal evidence points to significant increases this summer, which suggests that the herd will produce more litters than normal this winter. That means more market hogs than we’d expect from these numbers from April through July or August. Producers should be ready to aggressively price hogs for Q2 and Q3 on any rallies in Lean Hog futures.
Record Low Breeding Herd
The 5.874 million breeding animals in this report breaks the old “low” of 5.947 million set in June 2004. At least it’s the lowest number I can find in any of our data going back to 1900 – and that comes from Professor Glenn Grimes, University of Minnesota, who knows much more about such things than I.

The lowest number Professor Grimes could find from 1900 onward was an inventory of 6.078 million “sows and gilts 6 months and older” in 1935. That number would exclude boars and selected younger gilts that would be included in today’s breeding herd number.

It also represents a US herd decimated by Great Depression consumption. In 1923, there were 69.304 million hogs and pigs in the United States, among which were 14.133 million sows and gilts 6 months old and older. By 1935, the US hogs and pigs count dropped to 39.066 million head and the sow/gilt number had dropped to the aforementioned 6.078 million. Tough times on the farm and in the economy drove us to eat the capital stock!

The most recent peak in the US breeding herd occurred in June 1979, when US producers had 10.368 million breeding animals. Commercial hog slaughter and production in 1980 were 96.074 million head and 16.617 billion pounds, respectively. Those numbers put slaughter per breeding animal at 9.267 head and average production per breeding animal at 1,602 lb., carcass weight.

The same measures in 2008 were 19.343 hogs slaughtered and 3,916 lb. of pork produced per June 2008 breeding animal. Even when one deducts the 8 per cent of those pigs and pounds that originated in Canada, today’s output per breeding animal is more than double the level of less that 30 year ago.

[mikey]

Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME finished up again on Monday with the exception of the October contract. OCT’09LH futures finished down $0.075/cwt at $49.875/cwt and $0.275/cwt lower than last report. The October contract met resistance amid large numbers of heavy hogs coming to market. The DEC’09LH contract closed down $0.700/cwt at $49.725/cwt and $0.350/cwt higher than a week ago. Prices rallied on a technically defensive move by large speculators protecting long positions and last week’s USDA report showing a small drop in the herd size and increased fund buying. Weak export prospects and an endless supply of market hogs kept the lid on. USDA on Friday put the US hog herd down 2 per cent from last year at 66.626 mi head. The reproductive herd was placed at 5.874 mi head, down 3 per cent. However, the number of pigs per litter increased 102 per cent of a year ago. Pigs weighing 60 lbs or less showed a 96 per cent reduction in numbers. This was more than traders expected. USDA put the average pork price at $54.75/cwt; up $1.12/cwt but $2.04/cwt lower than a week ago. The latest CME lean hog index was placed at $52.43/lb, off $0.14/lb and $0.16/lb lower than last report. According to HedgersEdge.com the average pork plant margin was lowered $0.75/head to $6.30/head. This was based on the average buy of $36.28/cwt vs. the average breakeven price of $38.64/cwt.

CORN futures on the Chicago Board of Trade (CBOT) finished off on Monday. DEC’09 corn futures finished at $3.86/bu; up 4.75¢/bu and up 22.75¢/bu from last report. The MAY’09 contract closed at $3.602; up 4.75¢/bu. Trading continued sideways in a choppy pattern. Support came from gains in crude oil and wet weather delaying frost. Exports were neutral to bearish as USDA placed corn-inspected-for-export at 29.6 mi bu vs. 40.9 mi bu last week vs. 41.8 this time last year (-29 per cent of last year). The market seems to have factored in any frost scares. Funds bought over 4,000 contracts while large speculators trimmed 6,400 lots to 3,400 contracts. Cash corn bids were steady to weak in the US with those in the US Mid-Atlantic states coming in at 4.0¢/bu – 6.0¢/bu higher in many places. Several floor sources said they expect the corn market to plunge after Wednesday’s grain stocks report. Get up to 70 per cent of the ’09 crop sold if you haven’t already.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The NOV’09 contract closed at $9.194/bu; off 6.5¢/bu but 6.0¢/bu over last report. NOV’09 soybean futures closed at $8.936/bu; 12.75¢/bu lower than last Friday. Preliminary numbers from early harvesting are indicating very good yields. This combined with waning frost worries weighed on prices. Traders also expect USDA’s Wednesday grain report to show a slight decrease in use numbers. Prices remain in a consolidative range, trading sideways, with a bearish technical analysis bias. USDA confirmed a sale of 225,000 tonnes (8.3 mi bu) of US soybeans to China for later delivery. USDA reported soybeans-inspected-for-export at 7.427 mi bu. Cash soybean bids in the US Midwest were steady to firm while those in the US Mid-Atlantic states ranged 6.0¢/bu -14.0¢/bu lower. In long liquidation large speculators turned net bear for the week ended 9/22 by 846 lots decreasing bull positions by 9,790 contracts. Additionally, funds sold 2,000 lots. If you haven’t priced your crop it probably will pay to wait until harvest or store. The small carry does not justify any more sales at this time.

WHEAT futures in Chicago (CBOT) were up on Monday. DEC’09 futures closed at $4.556/bu; up 6.0¢/bu. The JULY’10 wheat contract closed at $5.052/bu; up 4.5¢/bu and 5.75+¢/bu cents higher than last Monday. Floor sources said things were ripe for a rebound from oversold conditions even though fundamentals did not support it. Also pressuring the market are expectations that USDA will raise its forecast for the ’09 US wheat crop by as much as 10 mi bu. This comes amid good wheat growing weather in Argentina. USDA placed wheat-inspected-for-export at 24 mi bu vs. expectations for between 18-23 mi bu. Egypt tendered for 55,000 – 60,000 tonnes (2.0-2.2 mi bu) of any-origin wheat while Iraq issued a tender for 100,000 tonnes (3.67 mi bu) of any-origin wheat. USDA said that the US spring wheat crop is 94 per cent harvested vs. the 5-year average of 98 per cent. Funds bought about 3,000 lots while large speculators cut net bear positions by almost 1,500 lots to 63,500 contracts. It might be a good idea to get up to 60 per cent of the ’10 crop priced at this time.

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NASDA Plans to Help Producers
US - The National Association of State Departments of Agriculture (NASDA) has put forward a plan to take extra dairy, pork and poultry supplies off the market to help producers.



The National Association of State Departments of Agriculture (NASDA) has put forward a plan to take extra dairy, pork and poultry supplies off the market, stabilising prices paid to producers while making more protein-rich foods available to food banks, school lunch programs and other food assistance programmes.

South East Farm Press reports that North Carolina Agriculture Commissioner, Steve Troxler, and his counterparts across the country have offered the federal government a new proposal to help struggling dairy, pork and poultry farmers.

The National Association of State Departments of Agriculture (NASDA) has put forward a plan to take extra dairy, pork and poultry supplies off the market, stabilizing prices paid to producers while making more protein-rich foods available to food banks, school lunch programmes and other food assistance programmes, Troxler said. The proposal grew out of discussions between Troxler and his colleagues before and during NASDA's annual meeting in Alabama. It is designed to use money previously authorised by Congress.

The proposal, known as 'Meat the Need', calls for the federal government to purchase cheese and other dairy products in up to three installments of 75 million pounds each over 120 days.

If the target price of $16 per hundredweight of milk – the cost of production – is reached before the second or third installment, the purchases would stop, Mr Troxler said. Likewise, the government would purchase up to three installments of 100 million pounds of pork products over 180 days until a target price of 49 cents per pound – the average cost of production – is reached. The plan also includes a one-time purchase of 100 million pounds of turkey.

"This is a bold solution that would allow the US Department of Agriculture to increase allocations to the Supplemental Nutrition Assistance Program, and beneficiaries would spend the new allocations on meat and possibly dairy products," Mr Troxler said. "These products would be available at grocery stores, and participants would be given separate electronic benefits transfer cards to purchase the products."

Mr Troxler said major action is needed quickly, reports South East Farm Press.

He said: "Dairy farmers across the country are suffering mightily. Bankruptcies and foreclosures are occurring at an alarming rate."

USDA has been buying pork but not nearly enough to do anything about the prices farmers receive, he said.

Mr Troxler said: "'Meat the Need' provides the impact the dairy and pork industries need. It is fiscally sound and is flexible enough to respond to changing market conditions."

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CME: Cull Sow Supply on US-Canadian Market to Rise
US - In Monday’s edition of DLR, we stated that the upcoming Canadian sow herd buyout program might decrease cull sow exports to the US as last year’s program did, write Steve Meyer and Len Steiner.



Anecdotal evidence we have received since that writing indicates that this year’s Canadian buyout program will not likely move culled sows to rendering but will instead buy the producer out of production for a specified time and stipulate that the sows will be sold on the cull sow market – much the same as the Cooperative Working Together US dairy herd buyouts have worked.

That, of course will INCREASE the supply of cull sows on the US-Canadian market during the prescribed liquidation period. Whether that will increase overall sow movement or simply supplant some US sows for a few weeks remains to be seen but we suspect it will be the latter unless sausage demand is particularly strong during the time period.

One good thing – it does not appear that Canadian producers are holding sows back right now, very likely because the Canadian program will be, as was last year’s, retroactive to some point earlier this year.

[mikey]

Weekly Review: Hogs and Pigs Report Bullish
US - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.

 
Ron Plain
The September Hogs and Pigs report came in a little more bullish than the trade estimates. Total number of hogs and pigs was down 2.3 per cent, kept for breeding was down 3.1 per cent according to USDA, and the market inventory was down 2.2 per cent. The futures market responded by showing relatively small gains both Monday and Tuesday.

USDA revised upward their estimate of the number of litters farrowed during December to February 2009 by 1.5 per cent and the pig crop for those months by 1.6 per cent. This brought the June market hog inventory more in line with summer hog slaughters. USDA revised upward the 60 to 170 pound market inventories in June by 0.7 per cent in the September report.

In recent reports, the USDA has estimated the number a little below the trade estimate but actual marketings on average have been above trade estimates. We must remember the USDA estimates are based on a sample and the trade estimates are based on other statistics and opinions. Therefore, both estimates are subject to error. We certainly hope the USDA's September estimates are the correct ones.

Our domestic demand index for pork for January to August was up 3.9 per cent at the consumer level, but live hog demand was down 4.7 per cent for these eight months compared to a year earlier. The weaker live hog demand than consumer demand was due to the 20 per cent smaller exports in 2009 than 2008.

Pork product cutout this week on Thursday afternoon at $54.33 per cwt was up $0.70 per cwt from a week earlier. Loins at $68.51 per cwt were down $1.15 per cwt, Boston butts at $50.40 per cwt were down $2.16 per cwt, hams at $48.46 per cwt were up $5.60 per cwt and bellies at $66.36 per cwt were down $1.47 per cwt compared to seven days earlier.

Feeder pig prices were $3.00 to $6.00 per head higher again last week. This is the third consecutive week with good gains in feeder pig prices. The average price for 50 to 54 per cent lean 10-pound pigs was $25.89 per head. The average for 50 to 54 per cent lean 40-pound pigs was $28.30 per head. The formula price for 10-pound pigs was $33.12 per head, and the formula price for 40-pound pigs was $39.31 per head. The cash or negotiated price for 10-pound pigs was $23.29 per head and 40-pound pigs was $27.43 per head.

Live barrow and gilt weights in Iowa-Minnesota last week at 268.5 pounds were up 0.3 pound from a week earlier and up 3.9 pounds from a year earlier.

It is believed that a substantial portion of the heavier weights this summer has been due to the cooler than normal temperatures in July and August. If so, we will continue to get weights closer to a year earlier as we go through the fall but weights are likely to continue some above a year earlier.

Unless we can get substantial growth in demand for live hogs, the red ink being experienced by producers will likely continue on average through 2010.

Live hog prices Friday morning were $0.75 lower to $1 pet cwt higher compared to a week earlier. Weighted average negotiated carcass prices Friday morning were $0.31-2.03 per cwt lower compared to seven days earlier.

The top live prices Friday morning were Peoria $30 per cwt, Zumbrota, Minnesota, $32 per cwt and interior Missouri $35 per cwt.

The weighted average negotiated carcass prices Friday morning by area were western Cornbelt $48.39 per cwt, eastern Cornbelt $45.44 per cwt, Iowa-Minnesota $48.47 per cwt and nation $46.09 per cwt.

Slaughter this week under Federal Inspection was estimated at 2,329 thousand head, up 0.1 per cent from a year earlier.

[mikey]

Monday, October 05, 2009
Signs of Hog Industry Recovery by Next Summer
US - The "first signs of the financial dawn" are starting to creep over the horizon in the US hog industry.



It won't happen overnight, but change for the better is on the way to the business, says AgricultureOnline. Namely, supplies are starting to dwindle further and demand - which could have "more positive implications for hog prices than reduced supply" - is looking stronger.

Overall, that means if hog farmers can dig in and make it through the next half year, next spring's thaw might be followed by a resurrection of profits for an industry that's really been hurting for a while now.

"The components of the dawning are coming from both supply and demand factors. Production in 2009 dropped only 2 per cent with prospects of only a 1-2 per cent drop in 2010. While these reductions are small, they are at least headed in the right direction," says Purdue University Extension economist Chris Hurt. "Improving demand will likely have more positive implications for hog prices than reduced supply."

That's because forthcoming signs will likely point to the official end of the recession soon. Though the effects of the downturn won't altogether dry up and blow away to reveal a suddenly robust economy, GDP numbers for the third quarter of 2009 are anticipated to be "positive," Professor Hurt says. This will eventually translate to a return to higher demand that took a hit when unemployment started climbing and consumer confidence started slumping.

Put that together with lower pork prices for consumers, and Hurt says consumer demand will likely gain steam further into the fall season. In addition, the export outlook is more bullish, making the world market more rife for an increase in US pork sales.

"Exports are expected to strengthen as well. World economic recovery is expected to have more upside potential than the US recovery," Professor Hurt says. "Current USDA forecasts are for pork exports to be up 9 per cent over the next 9 months compared to the same period a year earlier."

Months ago, the call went out to trim the US sow herd, and eventually, farmers took note. Now, efforts to cull the herd should start to see dividends in the marketplace, Professor Hurt says. Per-capita pork availability will gradually decline in the next 9 months and as that happens, more of the increase in prices consumers pay will make it back to the farmer.

"Lower pork supplies with lower retail prices will strengthen hog prices and result in a higher portion of the retail pork expenditures flowing back to producers," Professor Hurt adds. "Hog prices are expected to average in the high $30s on a liveweight basis for the final quarter of 2009. Prices are expected to rise to the low $40s this winter and then move into the mid-$40s for second quarter averages. Next summer's prices are expected to rise into the high $40s for an average and the low $50s for weekly highs."


 

[mikey]

CME: Hog Slaughter This Week Slightly Higher
US - Lean hog carcass future for Q4 of this year continue to hover at a little under $50 per cwt, which implies $36.5 on a live basis and negative margins anyway you look at it, write Steve Meyer and Len Steiner.



Producers have to wait until late next spring before seeing any (potential) profits, and that is predicated on the assumption that we will see continued sow herd liquidation this fall and winter and productivity growth returns to trend levels.

Hog slaughter this week was slightly higher than a year ago but after accounting for much heavier hogs coming to market, total US pork production this week at 469.4 million pounds was 3.5 million pounds or 0.8 per cent higher than a year ago. It is the largest amount of pork produced in the first week of October, and a reason why the market is finding it so difficult to get any upward price momentum.

Ham prices tend to carry the market at this time of year but given the available supply, ham prices actually were down 5 per cent or more compared to the week before and they are currently 42-45 per cent lower than a year ago, a troubling sign for overall pork wholesale values in the short term.

[mikey]

CME: Canadian Breeding Herd Reduction Slowed
US - The government of Canada announced on Friday the details for two programs to aid its beleaguered pork industry, write Steve Meyer and Len Steiner in their Daily Livestock Report for 5 October.



One is designed to keep producers with economically viable operations in business while the other is designed to provide an incentive for other producers to exit the business for at least three years.

The Hog Industry Loan Loss Reserve Program (HILLRP) will provide government loan guarantees based on “credible business plans, validated by lenders, demonstrating that the borrower has reasonable potential to repay the loans and maintain a viable agricultural operation.” The program will loan up to $85 per market hog, $30 per weaner (we think that means a 40-45 pound feeder pig) and $25 per iso-wean pigs (we are pretty confident that means a 10 to 12-pound pig). One kicker: Any loans issued under HILLRP must first be used to reimburse the government of Canada for any 2008-09 program payment advances. Our sources in Canada believe that the amount of participation in this portion of the government’s program may be limited due to a) the advance repayment feature which, in effect, removes the cash infusion for an operation and b) the long-term financial losses suffered by Canadian producers which has left questionable the ability of many to devise a “credible business plan” for long-term viability.

The Hog Farm Transition Program (HFTP) is a $C75 million initiative to help producers exit hog production for at least three years. Payment levels and the number of participants will be determined by a tender process. No details were provided but it appears, as we reported last week, to be much like the US dairy herd buyouts run by Cooperatives Working Together. The announcement says there will be a “series of tenders” whose precise dates and funding levels will be determined as the program progresses. HFTP is retroactive to April 1, 2009 so any producers who sold out entire sow barns since that date can submit a tender for payment. Participants must the be the owners of the pigs. If the pigs are in barns owned by someone other than the pig owner, the barn owner(s) must also agree to idle the facilities for three years following the depopulation of breeding animals.

We could find nothing in the materials from Agri-Food Canada or the Canadian Pork Council that specified how the culled animals would be disposed of. We still believe the culled animals will enter normal slaughter channels, thus increasing sow and boar supplies and possibly slowing the reduction of the US breeding herd. We will provide more information as soon as we have it.

As you can see from the graph below, the rate of reduction of Canada’s breeding herd (the fuscia or pink line) has slowed since October when the breeding herd was 8.9 per cent smaller that one year earlier. The 1 July inventory of 1.38 million head was 4.6 per cent lower than last year but we believe the rate of reduction has increased since that time. Canada’s herd fell by 28,700 had from July 1 through September 30, 2008. This year, Canadian commercial sow slaughter has been 3,627 head smaller than last. Last summer’s sow buyout program removed another 19,776 animals during that time period in 2008 and, obviously, has removed none this year. But exports of cull Canadian breeding animals to the US have been 42,911 head larger this year suggesting that the draw-down of Canada’s breeding herd during July-September will be about 20,000 head larger this year. That will put the 1 October herd near 1.32 million head.


The HFTP will cover some of those sows and add to the reductions going forward. It still appears that Canada’s breeding herd is heading for somewhere near 1.2 million head.

One of the drivers is once again the value of the Canadian dollar which has gained 20 per cent vs. the US dollar since it bottomed last March. That change reduces the amount of Canadian dollars received by Canadian producers regardless of where they sell their hogs but reduces only about half of Canadian producers’ production costs by a similar percentage — thus creating a profit squeeze for Canadian producers.

[mikey]

Market Preview: Price Spreads Exacerbated
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



Judging by some e-mails and phone calls I have received recently, it is time once again to discuss retail pork prices and price spreads. This topic always surfaces when hog prices fall sharply or remain low for an extended period of time – especially if retail pork prices don’t follow suit. The latter is virtually always the case!

Is it fair for producers to suffer and “middlemen” to make more money? No, not really. But neither is it fair for producers to profit during many past summers when margins for middlemen were reduced. That happens less frequently than does a decline in hog values, but just what is fair?

That’s a difficult question to answer, especially when we know far less about packers’, processors’ and retailers’ costs than we know about producers’ costs. That results in us judging gross profits, not net profits, as we should.

Here’s what we know about this situation is:

The USDA retail price series is notoriously “sticky downward,” which means that it very seldom shows a lower retail price and, when it does, that decline is small. One reason is that retail prices indeed rise and are more heavily impacted by general inflation than are farm-level or wholesale prices because they include more cost items (labor, transportation, packaging, real estate, etc.) that inflate. But this “stickiness” is also a fault of the data collected by the Bureau of Labor Statistics (BLS): They do not gather sales quantities. More units are sold at lower prices, but the lower prices are not more heavily weighted in the average because the BLS data gatherers do not know how much was sold at each price. This is especially a problem this year when widespread, heavy pork featuring by retailers has helped move unexpectedly large domestic supplies. USDA says that it will begin to capture scanner-based price and quantity information again this fall, so this problem may be addressed soon. Let’s hope so.


Farm-level demand is more inelastic than is wholesale-level demand and wholesale-level demand is more inelastic than retail-level demand. I know that sounds like econo-lad gobbledygook, but it is important. It means that a given change in supply causes farm prices to change more than wholesale prices and wholesale prices to change more than retail prices. There is no “right level” of elasticity. It’s sort of like gravity – it doesn’t matter whether you like it or not, it is what it is. But the implications are important: An increase in supply causes farm-level prices to drop by a higher percentage than does retail price, thus increasing the spread. That may be “unfair,” but I think not being able to fly like a bird is unfair, too, but on that issue and many others, it doesn’t matter what I think.


If the available supply is moving at price X, why should retailers charge anything less than price X? That is the situation now. July saw record-large domestic pork disappearance. June 2009 was the second largest June ever. I believe August and September will follow suit. Cold storage inventories are not burdensome and are actually declining. Why should retailers ask for less?


No dollar reaches a producer that does not pass through the coffers of a retailer or a foodservice outlet of some variety. Is there a better chance for a dollar to reach a producer if the total number of dollars is reduced? I don’t think so. While we may not like it when many of those dollars stay in the middlemen’s hands, the fact that the dollars are available – i.e., that consumers are willing to part with them to obtain pork products – is a good thing.


The less the industry must cut retail prices to keep product moving, the easier it will be to push wholesale and farm prices upward when supplies fall. Look at Figure 1. Notice that the space between the retail price and both the wholesale price and farm price is sort of an accordion – absorbing higher prices and capturing margin when upstream prices fall. When hog supplies fall – and they will eventually do so – a high retail price will allow wholesale and farm level prices to bounce back quickly. Otherwise, the entire price structure would have to be lifted, often over the objections of angry housewives and other meat buyers. That is a much more difficult task and will take longer to accomplish, thus slowing a return to farm-level profits.

So should we all be happy with wider price spreads? No. But we also need to realize why they occur and that the medicine needed to cure the “problem” may make things worse.

Everyone needs to make sure the downstream markets are competitive and, thus, provide incentives for firms at all levels to offer consumers the best value possible. Still, the current issue is too much pork on the market to command prices that will cover today’s much higher costs of production. Producers need to get to the task of reducing supplies if they want spreads to narrow and prices to improve.

[mikey]

US Swine Economics Report
US - USDA’s latest survey of the US swine inventory said the market herd was down 2.2 per cent on 1 September and the breeding herd was down 3.1 per cent compared to 12 months earlier, writes Ron Plain in his latest Swine Economics Report.

 
Ron Plain
The total inventory of hogs was down 2.3 per cent. The inventory was a bit smaller than the average of trade forecasts. The breeding inventory was the smallest in over a century.

USDA said June-August farrowings were down 3.5 per cent and forecast both September-November farrowings and December-February farrowings to be down 3.1 per cent. Pre-release trade estimates put June-August farrowings at down 3.2 per cent, forecast September-November to be down 2.7 per cent and December-February down 3.1 per cent.

Pigs per litter in the June-August quarter averaged a record 9.7 head, up 2.0 per cent compared to a year earlier and the 24th consecutive quarter above year-ago levels. The last five quarters have averaged 2.36 per cent more pigs per litter, offsetting much of the decline in farrowings.

June-August slaughter of barrows and gilts was above the level predicted by the June report. So, USDA revised upward the number of litters farrowed last winter by 46,000 and raised the winter pig crop by 443,000 head compared to their June estimate.

USDA said the inventory of market hogs weighing 60-179 pounds was down 1.8 per cent on 1 September. If correct, daily hog slaughter during the fourth quarter should be down 1.8 per cent plus the drop in slaughter hogs imported from Canada. Look for carcass hog prices during October-December to average in the mid $40s.

USDA said the inventory of market hogs weighing less than 60 pounds was down 3.7 per cent on 1 September, implying hog slaughter during the first quarter of 2010 will be down 4 per cent or so given the downward trend in hog imports from Canada. I expect first quarter carcass hog prices to average in the low to mid $50s.

Hog producer have been lost over $4 billion in the last 7 quarters and are cutting production. The sow herd has averaged 2.8 per cent below year-earlier levels during the past year. But, because of more pigs per litter June-August hog slaughter was up 0.2 per cent compared to last year and due to heavier slaughter weights June-August pork production was up 2.3 per cent. The supply of pork on the market needs to be sharply reduced or a lot of hog producers will be facing bankruptcy.