The results of Dow Jones' quarterly survey of market analysts regarding their estimates of the key numbers in USDA's Hogs and Pigs Report due to be released this afternoon appear in Figure 1. The watchword for these expectations as we consider industry growth relative to recent profitability is, again, "moderation."
Of course, there is probably little that will squelch a desire to raise more hogs as effectively as $4-plus corn! Note that the largest numbers in this table are for December-February pig crop and the under-60 lb. inventory. Those estimates indicate larger slaughter than did the December report through mid-April and again during the fourth quarter. The predicted increase through mid-April (roughly 28,000 head/week) is not nearly as large as recent slaughter over-runs have been.
If exports continue strong and the actual numbers come out near the level shown in Figure 1, these figures should not drive hog prices significantly lower. Lower chicken production and, thus, higher prices and what presently appears to be very good beef demand should support prices as well. Watch your e-mail on Monday for my review of the actual report numbers.
All Eyes on Planting Estimates
The other report that is garnering huge attention is Friday morning's Prospective Plantings report. Consider that this report is being discussed beyond the agricultural press. That doesn't happen too often for corn, but it sure does now that ethanol is part of the collective interest.
By the time you receive this letter, the actual numbers will be widely distributed. If planned corn plantings are close to the 88.06 million acres and historic harvest rates apply, we will harvest 80.13 million acres of corn next fall. Depending on how one constructs a long-term trend, we can expect a trend yield of 148 to 154 bu./acre. Those give a total crop of 11.86 to 12.34 billion bushels. Those numbers are 1.3 to 1.8 billion bushels larger than last year's crop -- but many believe that ethanol usage will increase by about 1 billion bushels.
The bottom line is that carryout stocks at the end of the 2007-08 crop year may not be much larger than the 752 million bushels predicted at the end of this crop year. It will take a huge crop to do much more, so don't expect any big breaks on feed costs.
BK Joins Welfare-Friendly Bandwagon
Burger King fired the latest shot in the welfare-friendly battles this week when they announced their preference for product from non-caged layers, non-stalled sows and chickens that are gas stunned instead of electrically stunned. While they will prefer these products, they acknowledged that there is presently a short supply. Burger King estimates that they will buy 2% of their eggs and 10% of their pork from such sources. They expect those levels to increase by the end of the year. That appears very ambitious to me -- especially for pork. This product segment is growing, but identifying that much product will probably be difficult over that short time horizon.
This announcement underscores my belief that the pressure from Smithfield Foods' move to eliminate gestation stalls will come from downstream pork users (restaurants, retailers, etc.) trying to keep up in the perceived rush to satisfy consumers' animal welfare wishes.
It reminds me of everything I have read and heard about Britain's animal welfare regulations of the 1990s. British food retailers basically forced the regulations on British producers because they thought consumers wanted it -- or feared animal rights' group protests. But after producers were forced to adopt lower-productivity and higher-cost methods, British consumers and retailers widely opted for lower-cost product from Denmark and other European Union suppliers that had not been forced to adopt the "welfare-friendly" methods.
Should this trend continue, it would erode our competitive advantage in export markets and possibly provide opportunities for Canada and other countries to sell more product in the United States.
Editor's Note:
Due to a problem getting data this week, the weekly data tables are not available. Those tables will be updated and included in a Hogs and Pigs Report special edition next Monday.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com