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"Pork producers must like making money, because they sure are not
willing to rock the boat by expanding," said Chris Hurt. "The
USDA's September hogs and pigs report says that producers are
content keeping numbers about where they have been. In fact, the
breeding herd has changed less than 1 percent in each of the
last five quarterly reports -- the longest period ever with such
small changes. "However, the trend may be broken, as producers
are finally hinting at some expansion in the distant future."
For now, they appear willing to stand pat.
"Are U.S. producers sending the signal that they would rather
have producers in other countries expand, or has there just been
too much uncertainty to make the first move?" Hurt asked.
"Producers need to make up their minds in the next six months,
and my expectation is that U.S. producers will vote for greater
expansion."
Reviewing the USDA report, Hurt noted that the size of the
nation's breeding herd and market herd remained unchanged from
the level of a year ago. Slaughter numbers are expected to be up
only 1 percent in October and November and nearly unchanged in
December, January and February.
The number of sows farrowed this summer was unchanged, but
the number of pigs per litter was up 1 percent. For the fall,
producers intend to keep farrowings unchanged. The hint toward
expansion shows up in the winter, when farrowings are expected
to increase, but just by 1 percent.
"The size of the breeding herds in individual states was
pretty stable, with the exceptions of Illinois, which was up 5
percent, and Iowa, which was up 4 percent," said Hurt. "Notable
declines occurred in Minnesota, with a 2 percent reduction, and
in Indiana, with a 3 percent reduction.
"Pork supplies are expected to be up about 1 percent this
fall and winter and up about 2 percent next spring and summer.
However, with increasing population and strong exports, the
available supply per person will be little unchanged from
year-previous levels."
Pork trade continues to be the featured story, along with
lack of expansion.
[to top of second column in this article]
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Data through July show exports to be up 26 percent from the
same period one year ago. This year, pork exports have
represented a record 13 percent of U.S. production. Imports are
down by about 10 percent, so the net effect is that pork
available to U.S. consumer is actually down around 3 percent so
far this year.
"No wonder prices have remained strong," Hurt observed.
Hog prices, on live-weight basis, are expected to average in
the very high $40s over the coming 12 months. In the last three
months of this year, prices are expected to average in the $45
to $49 range, although daily fall lows could drop to around $45
in late October and early November.
Prices in the winter are expected to be about $1 higher.
Second-quarter 2006 prices are expected to be in the very high
$40s, with summer prices in the very high $40s to low $50s.
"With current corn and soybean meal prices, cost of
production for farrow-to-finish production is estimated to be
near $40 per live hundredweight for the next 12 months," said
Hurt. "This means that margins will be about $7 to $9 per
hundredweight, which is about $2 better than estimates from late
summer."
The current period of profitability began in the second
quarter of 2004 and is now expected to continue at least through
the summer of 2006, resulting in at least 10 consecutive
quarters of positive margins, Hurt noted.
"The last time that occurred was from 1985 to 1988, when the
hog market registered 12 consecutive quarters of margins in the
black," he said. "The current long-run period of profitable
prices is a market signal that the world would like U.S.
producers to loosen up a bit and get some expansion under way.
"Of course, U.S. producers are hesitant because Canada is
where the sow expansion has been since 1998, and there remains
uncertainty regarding how long pork strength will remain if the
mad cow disease testing issue is resolved with Japan. There is
additional uncertainty about the costs of production, with
rising building costs, rising interest rates, and rising and
unpredictable energy prices."
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences] |
