Lower Inventories Are Good News

USDA's September Hogs and Pigs Report was good news for pork producers. Both the breeding herd and the market hog inventory on Sept. 1 were 1% smaller than a year ago.

Also, the March 1 and June 1 breeding herd inventory were both revised downward by 12,000 head (0.2%).

The number of litters farrowed was revised down for each month from November 2000 through July 2001.

The number of pigs produced/litter was revised down for seven of the first eight months of 2001. This resulted in the March 1 market hog inventory being lowered by 988,000 head (1.9%) and the June 1 market hog inventory being reduced by 846,000 head (1.6%).

An important implication of these downward revisions is that the rapid growth in reproductive efficiency appears to have ended. The number of pigs/litter during the June-August quarter increased 9.5% from 8.09 in 1993 to 8.86 in 1999, then declined to 8.84 in 2000 and 8.82 this year.

The one bit of bearish news for prices in the report was the farrowing intentions. The trade had predicted that both fall and winter farrowings would be up 1% from the year before. USDA is forecasting September-November farrowings at 101% but December-February farrowings at 103% of year earlier levels.

An increase in litters farrowed would certainly be in keeping with profitability. The average pork producer has made money 18 of the last 20 months. However, our gilt data shows no growth in the breeding herd and through mid-September, year-to-date sow slaughter was up 0.9% compared to the same period last year.

Pork Demand Solid

Pork demand at the consumer level has been good in the last four years. The retail price of pork set 10 records in the past 19 months. Retail pork prices in August were record high at $2.763/lb., 4% higher than a year ago. In August, the processor-retailer margin was down 0.8% from 12 months earlier, the packers' margin was up 0.3% and live hog prices were up 15.7%.

For the first eight months of 2001, pork demand was down 1.1% based on preliminary data. Demand for live hogs showed growth of 1.7% from January-August 2001.

The heavier weight market inventories in the September report show the potential for October-December slaughter about 1% smaller than a year earlier.

USDA has the 180-lb. and heavier inventories even with last year, but September slaughter on a daily basis was up over 1%. If daily slaughter for the fourth quarter is down 1%, barrow and gilt prices will average $39-42 at the terminal markets.

The number of pigs weighing less than 60 lb. is 2.2% smaller than on September 1, 2000. This shows potential slaughter in the first quarter of 2002 to be down about 2% from 2001; unless we run into a demand problem, terminal hog prices will average $42-45/cwt.

Unless U.S. hog producers increase the breeding herd quite rapidly, we should have adequate slaughter capacity in 2002, assuming we don't lose any more slaughter capacity.

Hog prices averaged $44.52/cwt. at the terminal markets during September. U.S. basis 51-52% lean hogs averaged about $3 higher this summer than the terminal market average. Our price and slaughter estimates are in Table 2.

Table 1. U.S. Hog Inventories, Sept. 1, 2001

Table 2. Estimated U.S. Commercial Hog Slaughter by Quarter and Six-Market Prices