Report Brings Cautious Optimism

The USDA Hogs and Pigs report for March 1, 2003, came in very close to the average of the trade estimates.

The market herd was a little smaller than our estimate. However, the breeding herd estimate by USDA was very consistent with gilt and sow slaughter indications.

Slaughter for the first quarter of 2003 was over 2% above our expectations based on the December report. USDA revised the market inventories up for both the September and December reports.

The report's 4% decline in the breeding herd and the 2% decline in the market inventories are progress in the right direction. Still, the decline is not enough to push hog prices above breakeven for the average producer for many months during 2003.

Demand at the consumer level did show a little growth last year. Hopefully this growth will continue through 2003.

Farrow, Slaughter Projections

The number of sows farrowing in the December-to-February period was down nearly 2.5% rather than the 1% indicated in the December report. This is more consistent with the breeding herd being down 3% on Dec. 1.

Farrowing intentions for both periods March-May and June-August, 2003 are down nearly 3.5%. Even though the breeding herd on March 1 was down nearly 4.5%, a farrowing number down nearly 1% less than the reduction in the breeding herd is not only possible, it is likely due to productivity growth.

Farrowing intentions for both the second and third quarter this year show the potential for about a 3.5% decline from 2002. At this time, because of anticipated productivity growth, we doubt slaughter for the fourth quarter of 2003 and the first quarter of 2004 will be down this much due to productivity growth.

Slaughter during March, up about 1.7%, is consistent with the 180 lb. and heavier market inventories which were up 1.2% from last year. The heavier weight market inventories indicate slaughter for April-June will be down about 2.5% from 2002. The probabilities are extremely high that the April-June slaughter in 2003 will be the smallest quarterly slaughter for this year. The lighter weight market inventories suggest July-September slaughter will be down about 2% from last year.

Other Meat Supplies

USDA is estimating beef supplies will be down nearly 3% in 2003 compared to 2002.

USDA is forecasting broiler production to be down in the first three quarters of 2003, but up sharply in the fourth quarter, compared to last year.

Cold storage stocks remain high and will continue to put negative pressure on prices.

Hopefully, 2003 will be the 13th consecutive year of pork export growth. Pork exports in 2002 were 6.6 times larger than in 1990. Any growth in exports will be positive to cash hog prices.

Ongoing Structural Change

The March 1 report continues to reflect the change in the structure of the hog industry with the quite modest drop in market inventories and pig crops following 17 consecutive months of losses to the average hog producer based on the Iowa data.

Our estimates of prices and slaughter by quarter for the next year are in Table 2. We believe the $5-8 increase in the second quarter price is not only possible, but also likely. Hopefully, all of the negative price factors in the second quarter of 2002 will not occur again this year.