Farm News, IA
01-22-07
Red ink expected for nation’s pork producers in ‘07
By Kristin Danley-Greiner, Farm News staff
The 2006 fourth quarter hogs and pigs report released Dec. 27 positions Iowa’s
hog inventory as the nation’s pacesetter, but farrowings in the state are expected
to be lower this winter compared to last year.
John Lawrence, livestock economist at Iowa State University, said the
USDA figures were near trade expectations and should not cause a major market
adjustment. The USDA report indicates that the U.S. inventory of hogs stands at
62.1 million head, up just 1.1 percent from the previous year. The number of
market hogs also increased 1.1 percent, while the breeding herd increased 1.3
percent.
December through February farrowing intentions for the nation showed a 2.2
percent increase from the previous year’s levels, suggesting that hog slaughter
for the third quarters of 2007 will be at least 2 percent higher than in 2006,
Lawrence said. But the March through May 2007 intentions are up only 0.5
percent; however, the figure may be revised upward at a later date, he said.
Iowa’s farrowings are expected to be lower this winter than last year.
Iowa’s hog inventory increased at a faster pace than the nation and now stands
at more than 17 million hogs. The state’s breeding herd also increased, but at a
slower pace.
Canadian hog exports to the U.S. may slow down in 2007. The number of
slaughter hog exports out of Canada declined 2 percent in 2006. The JulySeptember pig crop in Canada was down 3.4 percent and farrowing intentions for
October through December were down 2.1 percent, Lawrence noted.
“A stronger Canadian dollar and a moratorium on hog buildings in Manitoba are
expected to slow growth of the Canadian herd. As a result, we may see fewer
slaughter hogs imported to the U.S. for slaughter,Ӕ Lawrence stated in his review
of the report. “There may also be a reduction or at least slower growth in pig
imports, but the demand for pigs by U.S. finishers will also be a factor. While
some farmers may opt to sell corn rather than buy pigs to finish, many have a
large sunk cost in facilities to consider. If they can cover the variable cost they
have an incentive to operate the facilities.Ӕ
Lawrence anticipates that pork prices for 2007 will remain slightly lower than in
2006, which is being fueled by supply and demand, plus rising corn prices. He
explained that a $1 per bushel increase in corn prices will result in a $4.44/cwt
(live) increase in the cost of producing hogs, or $6/cwt carcass weight.
“Given the now higher corn prices and price forecast, pork producers may see
some red ink during the first quarter of 2007. Summer prices should be higher
than cost of production unless corn and/or soybean meal prices increase further.
If we have sustained corn prices in the mid-$3/bushel range, producers are
expected to be in the red again in the fourth quarter,Ӕ he said.
Economist Ron Plain at the University of Missouri-Columbia, along with fellow
economist Glenn Grimes, said live hog demand strength has been aided by pork
export growth, population growth in the U.S. and increased slaughter capacity in
the U.S.
“If we can hold the strong live hog demand of the fall of 2006 through 2007, live
hog prices for 2007 are likely to average the same as in 2006 to a couple of
dollars lower. The challenge to hog producers will be higher corn prices, which
may push the breakeven price for average-cost producers to $50-51 per cwt for
2007,î they noted in their review of the fourth quarter hogs and pigs report. “If so,
the odds are high for modest losses for the year for the average-cost producer.Ӕ