Hog production will continue to run higher than expected, dragging out the potential for losses until next spring, according to a Purdue University Extension marketing specialist.
“If everything had gone as planned, hog producers would not be mired in the largest losses since late in 2002, when they were losing $25/hog,” says Chris Hurt. “But things did not go as planned.
“The September Hogs and Pigs report from USDA indicated that slaughter supplies for October and November would be up about 3%. October slaughter was actually up a remarkable 11%, and November slaughter has been up about 7-8%. Where have all the hogs come from?”
The answer is from sows and gilts that were farrowing back in the spring, responds Hurt. Sow farrowings were projected up by 1%by USDA, and pigs/litter added another 1% to those supplies.
But it is clear now that the number of sows farrowing and pig inventory were greatly underestimated back to last spring.
“High slaughter runs, pushing past capacity, have forced some Saturday kills and have depressed hog prices,” reports Hurt. “In September, hog prices averaged about $47/cwt. for 51 to 52% lean carcasses live. Those prices have dropped to $35 in recent weeks.
“High corn and meal prices have accelerated costs into the very high $40s, and resulted in losses of an estimated $9/cwt. for average costs for farrow-to-finish operations.”
With slaughter supplies running sharply higher than USDA predictions for two months, it’s possible this trend will continue through the rest of this year and well into the winter, Hurt adds.
“This will keep the losses in the high single-digit range through the winter until the spring and summer seasonal hog price upswing is realized,” he adds. “Given anticipated cash corn prices of near $4/bu. next summer, and meal prices near $300/ton, costs are expected to be in the low $50s.
“It is expected that hog prices will not average above $50 for the spring and summer quarters, resulting in losses of $4 to $8/head.”
Larger losses can be expected to return in the fall and winter of 2008, Hurt suggests.
“This outlook means the time is finally ripe for breeding herd cutbacks to occur in the first half of 2008,” he stresses. “The last time the industry had to cut back on the breeding herd was in late 2002 and early 2003. In that liquidation, the breeding herd dropped about 4%. A similar decline in 2008 may be required to bring the industry back to profitability into 2009.
“Reductions in the breeding herd may not begin to show up in the USDA inventory reports until June of 2008. This means that reductions in pork supplies will not come to fruition until early in 2009. And that is if some industry liquidation gets underway this winter.”
Hurt agrees that cheap U.S. pork prices and the cheap U.S. dollar could help boost domestic demand and pull hog prices high enough to avoid an extended period of losses.
But he points out that a “slow-growing and nervous U.S. economy and larger competitive meat supplies” could dampen prospects for a bailout of domestic demand.