The June 1 market herd at 98% of 1999 was 1% larger than the average of trade estimates. The Breeding herd at 96% of 1999 was 1% smaller than the trade average and 2% below our estimate using gilt data.

At this time, we are going with the U.S. Department of Agriculture (USDA) estimate. We believe our error may have been due to our gilt data not monitoring the larger producers well, and our factor for compensating for this is historical data. The large producers are not growing much now in comparison to the last five years.

The key word continues to be demand - especially at the live hog price level. Pork production for January-May was down 2%. When production is adjusted for one extra weekday this year because of leap year, the supply on a daily basis is down about 3%. However, 51-52% lean hog prices in the U.S. were up between 42 and 43% for these five months in 2000 compared to 1999.

About 66% of the increase in live prices is due to narrower marketing margins and higher belly prices. A short 30% of the gain in price can be associated with the increase in belly prices and a long 36% is due to narrower marketing margins. Seventy-one percent of the reduced margin was at the packer level and 29% at the processor and retailer level.

The need is great for pork producers to eliminate a high percentage of the cyclical fluctuation in production. Continued big changes in production from year to year will speed up the vertical arrangements in production and marketing of hogs.

Production efficiency continues to impress. For example, the report shows the breeding herd on June 1 down 4%, but farrowing intentions for June-August are only down 2%, and farrowing intentions for September-November suggest a 1% increase from 1999. The current data supports a productivity growth between 3% and 4% this year - without any growth in the sow herd.

Commercial hog slaughter in the U.S. for 1998, 1999, and 2000 will be about 15% above 10 years earlier. Slaughter since the first of June has been down about 3% - close to the reduction in number of market hogs weighing 180 lb. or more on June 1.

The June Hogs & Pigs market inventories point to a 2.5% decline in marketings for July-September 2000 compared to 1999. If slaughter in coming weeks is down no more than indicated by the Hogs & Pigs Report, the seasonal-high, live hog price may have occurred during the week ending June 24.

With continued strong live hog demand, a 2-3% decline in slaughter will likely put prices in the mid to upper $40s at the six terminal markets for third quarter of 2000.

With seasonal increases in slaughter, we expect the average price for the fourth quarter to be in the upper $30s to low $40s at the six terminal markets. The average price for 51-52% lean hogs has been $2/cwt. higher than at the six terminal markets.

The larger slaughter numbers in the fourth quarter will likely permit packer margins to get back into the black and prices to drop $6-8/cwt. from the third to the fourth quarter.

USDA farrowing intentions for the third and fourth quarters suggest a 1% decline in slaughter for the first quarter of 2001 from a year earlier. For the second quarter of 2001, we project a 2% increase in slaughter from this year. Our estimates of commercial hog slaughter and prices by quarter for the next year are in Table 2.