USDA reported market herd and total herd numbers came in close to trade expectations, but the breeding herd was about 2% below average estimates.
According to USDA's Sept. 1, Hogs & Pigs Report, the breeding herd was estimated at 92% of levels shown one year earlier. Both the market herd and total herd were estimated at 96% of the previous year.
Our gilt slaughter data would indicate a slightly smaller breeding herd, although that data is biased towards the Corn Belt. Corn Belt states' breeding herd was down nearly 12%.
Breeding herd estimates in Illinois and Wisconsin were down 20% or more. Herds in Indiana, Iowa, Kansas, Nebraska and Ohio were down 10% or more. Missouri, Minnesota and South Dakota showed decreases less than 10%.
Arkansas, Georgia, Kentucky, North Carolina and Pennsylvania averaged 1% less in the breeding herd. Oklahoma's breeding herd was estimated to be up 10% from last year.
USDA shows the 33 states that do not have individual state data for Sept. 1 are down about 5% in their breeding herd. Based on National Pork Board marketings from these states in 1998 compared to 1997, we believe there is a chance that USDA is overestimating these states' production. However, it would take quite a large miss in these states to influence the total U.S.
Conditions in the hog industry continue to be favorable for concentration in production and vertical coordination with packing. When the purchase of Murphy Family Farms by Smithfield is completed, we believe about 25% of the U.S. hog industry will be vertically integrated. We believe that another 45% of the industry is now vertically coordinated - meaning the hogs are under marketing contracts with packers.
Based on the heavier-weight-market-hog inventories and the 10-year slaughter relationship with these inventories, this year's fourth quarter slaughter numbers could be down almost 7%.
However, using last year's fourth quarter slaughter numbers relative to the heavier-market-weight inventories, this year's fourth quarter slaughter numbers would be down only 4%.
There is a tendency for slaughter numbers to be lower relative to the heavier-market-weight inventories in years when production is declining. Therefore, we estimate a slaughter reduction of about 6% for October, November and compared to 1998.
Based on the 10-year relationship between the under 60-lb. market inventories on Sept. 1 and slaughter in the first quarter of the following year, hog slaughter in January, February and March should be down a little more than 8% from a year earlier.
However, using last year's relationship of marketings in this quarter and the lighter-weight inventories, slaughter would only be down a little more than 4%. For this quarter we are going to go with slaughter down a little more than 6%. Again, marketings in the first quarter have been lower relative to the September inventories in years where production was declining.
Productivity growth continues, a situation where what is good for the individual producer is not desirable for the total production segment of the industry.
Although the breeding herd on June 1 was down 6%, farrowings during June, July and August were down only 4%, and the pig crop was only down 3%. With a breeding herd down 8% on Sept. 1, farrowing intentions for September, October and November are forecasted to be down only 5%. December, January and February farrowing intentions are forecasted to only be down 3%.
We are hoping that both quarters' farrowings will be a little below the intentions. If so, marketings in the second and third quarters will be below our estimates in Table 2, which would be positive for prices.
Demand for pork at the consumer level continues to show a 1-2% growth for January-July compared to last year. This is the fourth consecutive year with some growth at the consumer level.
Our slaughter estimates and prices by quarter for the next 12 months are in Table 2.